IN THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

NO. 14-1243

In re Lamictal Direct Purchaser Antitrust Litigation

King Drug Co. of Florence, Inc., et al.,

 Plaintiffs-Appellants,

v.

SmithKlineBeecham Corp., et al.,

 Defendants-Appellees.

On Appeal from the United States District Court

For the District of New Jersey (No. 2:12-cv-995-WHW-CLW)

BRIEF OF FEDERAL TRADE COMMMISSION AS AMICUS CURAIE

IN SUPPORT OF PLAINTIFFS-APPELLANTS

Deborah L. Feinstein

Director

Stephen Weissman

Deputy Director

Markus H. Meier

Assistant Director

Bradley S. Albert

Deputy Assistant Director

Jamie R. Towey

Attorney

Bureau of Competition

FEDERAL TRADE COMMISSION

600 Pennsylvania Avenue NW

Washington, DC 20580

Jonathan E. Nuechterlein

General Counsel

John F. Daly

Deputy General Counsel for Litigation

Mark S. Hegedus

Attorney

Office of the General Counsel

FEDERAL TRADE COMMISSION

600 Pennsylvania Avenue NW

Washington, DC 20580

202-326-2115

mhegedus@ftc.gov

Attorneys for Federal Trade 

Commission

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i 

TABLE OF CONTENTS

PAGE

TABLE OF AUTHORITIES ................................................................................... iii 

INTRODUCTION .................................................................................................... 1 

INTERESTS OF THE FEDERAL TRADE COMMISSION .................................. 3 

STATEMENT OF THE CASE................................................................................. 6 

1. Pharmaceutical Patents, Generic Entry and the

Hatch-Waxman Amendments ................................................................... 6 

2. The Economics of Generic Entry and ReversePayment Agreements................................................................................. 8 

3. The Economics of a No-AG Commitment.............................................. 11

4. The Supreme Court’s Decision in FTC v. Actavis and

the Current Litigation .............................................................................. 14

SUMMARY OF ARGUMENT.............................................................................. 16

ARGUMENT.......................................................................................................... 18 

I. ACTAVIS CONFIRMS THAT PATENT SETTLEMENTS

BETWEEN A PATENTEE AND ITS POTENTIAL COMPETITOR

ARE SUBJECT TO TRADITIONAL ANTITRUST PRINCIPLES...... 18

II. A NO-AG COMMITMENT RAISES ALL THE SAME CONCERNS

THAT THE ACTAVIS COURT IDENTIFIED AS A BASIS

FOR ANTITRUST REVIEW ................................................................. 22

III. RECIPROCAL AGREEMENTS NOT TO COMPETE

CAN CAUSE ANTICOMPETITIVE HARM AND MAY

VIOLATE THE ANTITRUST LAWS ................................................... 28

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CONCLUSION....................................................................................................... 31 

COMBINED CERTIFICATES

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iii

*Principal authorities.

TABLE OF AUTHORITIES* 

CASES PAGE

*American Needle, Inc. v. Nat'l Football League, 

130 S. Ct. 2201 (2010)........................................................................................22

Benger Labs. Ltd. v. R.K. Laros Co., 

209 F. Supp. 639 (E.D. Pa. 1962).......................................................................28

Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 

132 S. Ct. 1670 (2012)................................................................................. 5, 6, 7

Copperweld Corp. v. Indep. Tube Corp., 

467 U.S. 752 (1984)...................................................................................... 22-23

Eastman Kodak Co. v. Image Technical Servs., 

504 U.S. 451 (1992)............................................................................................23

*FTC v. Actavis, 

133 S. Ct. 2223 (2013)..................................... 1, 4, 10, 14, 15, 16, 17, 18, 19, 20

 21, 22, 23, 24, 29, 30

FTC v. Watson Pharm., Inc., 

677 F.3d 1298 (11th Cir. 2012), rev'd sub nom. 

FTC v. Actavis, 133 S. Ct. 2223 (2013)..............................................................15

Granholm v. Heald, 

544 U.S. 460 (2005).............................................................................................. 5 

In re K-Dur Antitrust Litig., 

686 F.3d 197 (3d Cir. 2012), cert. granted, vacated and remanded sub nom.

Upsher-Smith Labs., Inc. v. Louisiana Wholesale

Drug Co., Inc., 133 S. Ct. 2849 (2013) ............................................ 5, 14, 19, 23

Lear, Inc. v. Adkins, 

395 U.S. 653 (1969)............................................................................................20

Moraine Products v. ICI America, Inc., 

538 F.2d 134 (7th Cir. 1976) ..............................................................................29

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*Principal authorities.

Orson, Inc. v. Miramax Film Corp., 

79 F.3d 1358 (3d Cir. 1996) ...............................................................................28

*Palmer v. BRG of Ga., Inc., 

498 U.S. 46 (1990)..............................................................................................29

Schering-Plough Corp. v. FTC, 

402 F.3d 1056 (11th Cir. 2005) ............................................................................ 4 

Standard Oil Co. (Indiana) v. United States, 

283 U.S. 163 (1931)..................................................................................... 28, 29

Teva Pharm. Indus. v. Crawford, 

410 F.3d. 51 (D.C. Cir. 2005)............................................................................... 8 

United States v. Dentsply Int'l, Inc., 

399 F.3d 181 (3d Cir. 2005) ...............................................................................23

*United States v. New Wrinkle, 

342 U.S. 371 (1952)............................................................................................21

United States v. Singer Mfg. Co., 

374 U.S. 174 (1963)............................................................................................19

Va. State Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 

425 U.S. 748 (1976).............................................................................................. 5 

Weiss v. York Hosp., 

745 F.2d 786 (3d Cir. 1984) ...............................................................................23

STATUTES

Federal Trade Commission Act, 15 U.S.C. § 41 et seq. ............................................ 3 

Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et seq., ............................. 6 

21 U.S.C. § 321(g)(1) ........................................................................................... 6 

21 U.S.C. § 355..................................................................................................... 6 

21 U.S.C. § 355(b)................................................................................................ 6 

21 U.S.C. § 355(j)(2)(A)(vii)(IV)......................................................................... 7 

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v 

*Principal authorities.

21 U.S.C. § 355(j)(5)(B)(iii)................................................................................. 7 

21 U.S.C. § 355(j)(5)(B)(iv)................................................................................. 7 

The Drug Price Competition and Patent Term Restoration

Act of 1984, Pub. L. No. 98-417 ......................................................................... 4 

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 

Pub. L. No. 108-173, 117 Stat. 2066, § 1112 ...................................................... 4 

RULES AND REGULATIONS

Fed. R. App. P. 29(a) ................................................................................................ 5 

MISCELLANEOUS

12 Phillip Areeda & Herbert Hovenkamp, Antitrust Law ¶ 2046 (3d ed. 2012).....28

Michael A. Carrier, Solving the Drug Settlement Problem: The Legislative 

Approach, 41 Rutgers L.J. 83 (2009)..................................................................11

Comments of Generic Pharm. Ass’n (GPhA) to FTC on Authorized 

Generic Drug Study (Jun. 27, 2006), http://www.ftc.gov/policy/publiccomments/2006/06/27/comment-6 ....................................................................... 7 

FTC, Agreements Filed with the Federal Trade Commission Under the Medicare 

Prescription Drug, Improvement, and Modernization Act (FY 2012)

http://www.ftc.gov/sites/default/files/documents/reports/agreements-filedfederal-trade-commission-under-medicare-prescription-drug-improvementand/130117mmareport.pdf..................................................................................11

FTC, Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers

 Billions (2010), http://www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf....8, 9

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*Principal authorities.

*Federal Trade Commission Authorized Generic Drugs: Short-Term 

Effects and Long-Term Impact (2011), 

http://www.ftc.gov/os/2011/08/2011genericdrugreport.pdf

(AG Report) ............................................................ 5, 8, 11, 12, 13, 25, 26, 27, 28

Federal Trade Commission, The Evolving IP Marketplace: Aligning 

Patent Notice and Remedies with Competition (2011) 

(http://www.ftc.gov/reports/antitrust-enforcement-intellectual-property-rightspromoting-innovation-competition-report) .......................................................... 3 

Federal Trade Commission, Generic Drug Entry Prior to Patent Expiration 

(July 2002) (http://www.ftc.gov/reports/generic-drug-entry-prior-patentexpiration-ftc-study) ............................................................................................. 4 

Federal Trade Commission, To Promote Innovation: The Proper Balance 

of Competition and Patent Law and Policy (2003) 

(www.ftc.gov/os/2003/10/innovationrpt.pdf)....................................................... 4 

Generic Pharmaceutical Association Letter to Senate Special Committee on Aging

at 5 (Jul. 27, 2006), 

http://gpha.hfwebdev.com/sites/default/files/Smith%20and%20Kohl%20Letter.

pdf .......................................................................................................................12

C. Scott Hemphill, An Aggregate Approach to Antitrust: Using New Data and 

Rulemaking to Preserve Drug Competition, 109 Colum. L. Rev. 629 

(2009).................................................................................................................... 9 

C. Scott Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a 

Regulatory Design Problem, 81 N.Y.U. L. Rev. 1553 (2006)...........................10

IMS Inst. for Healthcare Informatics, Medicine Use and Shifting Costs of 

Healthcare: A Review of the Use of Medicines in the United States in 

2013 (Apr. 2014), 

http://www.imshealth.com/portal/site/imshealth/menuitem.762a961826aad98f5

3c753c71ad8c22a/?vgnextoid=c01665b5b0845410VgnVCM10000076192ca2R

CRD&vgnextchannel=736de5fda6370410VgnVCM10000076192ca2RCRD&v

gnextfmt=default................................................................................................... 8 

Teva Pharm. Indus. Ltd., Annual Report (Feb. 27, 2009).......................................13

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*Principal authorities.

U.S. Department of Justice & Federal Trade Commission, Antitrust 

Enforcement and Intellectual Property Rights: Promoting Innovation and 

Competition (2007) 

(http://www.ftc.gov/reports/innovation/P040101PromotingInnovationand 

Competitionrpt0704.pdf) .................................................................................. 3-4 

U.S. Department of Justice & Federal Trade Commission, Antitrust 

Guidelines for the Licensing of Intellectual Property (Apr. 6, 1995)

(http://www.justice.gov/atr/public/guidelines/0558.pdf) ........................ 4, 18, 27

U.S. Gov't Accountability Off., Report No. GAO-12-371R, Savings

from Generic Drug Use (2012), http://www.gao.gov/assets/590/588064.pdf ..... 9 

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INTRODUCTION

In FTC v. Actavis, 133 S. Ct. 2223 (2013), the Supreme Court reaffirmed 

that traditional antitrust principles apply to patent settlements and that patent law 

confers no broad immunity on parties to such agreements. Applying that principle, 

the Court held that a brand-name drug manufacturer’s payment in patent litigation

to a potential generic entrant can violate the antitrust laws under the rule of reason. 

The Court contrasted such “reverse payment” cases with certain other patent 

settlements, including those in which the parties simply specify a date on which 

generic entry will be permitted. As the Court recognized, agreements in the latter 

category are normally unproblematic because they presumably reflect only the 

parties’ risk-adjusted views of likely litigation outcomes. Id. at 2237. But antitrust 

concerns do arise where a branded-drug company agrees to make a reverse 

payment to compensate a generic company for staying out of the market for some

period, thereby eliminating the risk of competition and preserving—while 

sharing—the branded-drug company’s monopoly profits. 

Originally, reverse payments often took the form of outright cash transfers. 

Today, after years of antitrust scrutiny, a branded-drug company may sometimes 

induce a generic company to stay out of the market by offering it payments in kind

rather than in cash. This case exemplifies that phenomenon. 

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The reverse payment alleged here took the form of a valuable contractual 

commitment. Teva Pharmaceuticals initially challenged a patent that purportedly 

covered the anti-epileptic drug Lamictal and sought to introduce a cheaper, generic 

version. Congress enacted the Hatch-Waxman Amendments of 1984 precisely to 

spark challenges of this sort. Such challenges, when successful, greatly reduce 

drug prices to the benefit of consumers. But Teva abandoned its challenge in favor 

of a settlement agreement with GlaxoSmithKline, LLC (GSK), the manufacturer of 

brand-name Lamictal. 

That agreement freed GSK from the uncertainties of a patent challenge and 

guaranteed that it would enjoy several more years of monopoly profits. GSK, in 

turn, agreed that, when Teva did finally introduce generic Lamictal tablets, GSK

would refrain from introducing its own authorized generic (AG) product—i.e., the 

brand-name drug, but marketed as a generic product. That “No-AG commitment”

allowed Teva to capture all generic sales for six months and thus earn 

supracompetitive profits of its own. Thus, according to the complaint, the 

agreement denied consumers the opportunity to purchase generic Lamictal for 

several years and then, when a generic version finally became available, ensured 

that consumers would pay more for it than if the two companies had offered 

competing generic products. As alleged, the arrangement was a win-win for the 

parties, but a loss for consumers. 

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The district court nonetheless dismissed this case. It distinguished Actavis on 

the ground that the branded-drug company there had compensated the generic 

company in cash to induce it to stay out of the market for a defined period, whereas 

the branded-drug company here extended compensation in the form of a valuable 

agreement not to compete. The Actavis decision does not distinguish among the 

many forms of compensation that can support a potentially problematic reversepayment settlement. If accepted, the district court’s narrow reading of Actavis 

would undermine the Supreme Court’s decision in that case and encourage parties 

to structure potentially anticompetitive reverse-payment settlements simply by 

avoiding the use of cash. This Court should reverse.

INTERESTS OF THE FEDERAL TRADE COMMISSION 

The Federal Trade Commission is an independent agency charged with 

promoting a competitive marketplace and protecting consumer interests. See 15 

U.S.C. § 41 et seq. It has substantial experience concerning the balance between 

antitrust and intellectual property laws.1 The Commission also exercises primary 

responsibility over federal antitrust enforcement in the pharmaceutical industry. 

 

1 See, e.g., Federal Trade Commission, The Evolving IP Marketplace: Aligning 

Patent Notice and Remedies with Competition (2011) 

(http://www.ftc.gov/reports/antitrust-enforcement-intellectual-property-rightspromoting-innovation-competition-report); U.S. Department of Justice & Federal 

Trade Commission, Antitrust Enforcement and Intellectual Property Rights: 

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Of particular relevance here, the Commission has used its law enforcement 

authority to challenge patent settlements under the Hatch-Waxman Amendments,2

which Congress enacted in 1984 to encourage greater generic competition for 

prescription drugs.3 In 2002, the Commission also conducted a comprehensive 

study of generic drug entry,4 and since January 2004, it has reviewed drug-patent 

settlements that drug companies are now required to file,5 reporting those results 

annually. In 2011, the Commission published the results of a comprehensive 

 

Promoting Innovation and Competition (2007) 

(http://www.ftc.gov/reports/innovation/P040101PromotingInnovationand 

Competitionrpt0704.pdf); Federal Trade Commission, To Promote Innovation: The 

Proper Balance of Competition and Patent Law and Policy (2003) 

(www.ftc.gov/os/2003/10/innovationrpt.pdf); U.S. Department of Justice & 

Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual 

Property (Apr. 6, 1995) (http://www.justice.gov/atr/public/guidelines/0558.pdf)

2 The Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. 

No. 98-417 (codified at various sections of Titles 15, 21 and 35 of the U.S. Code).

3 See, e.g., FTC v. Actavis, 133 S. Ct. 2223 (2013); Schering-Plough Corp. v. FTC, 

402 F.3d 1056 (11th Cir. 2005); First Amended Complaint, FTC v. Cephalon, Inc., 

No. 08-2141, Doc. No. 40 (E.D. Pa. filed Aug. 12, 2009).

4 See Federal Trade Commission, Generic Drug Entry Prior to Patent Expiration

(July 2002) (http://www.ftc.gov/reports/generic-drug-entry-prior-patent-expirationftc-study) (Generic Drug Study). 

5 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 

Pub. L. No. 108-173, 117 Stat. 2066, § 1112 (codified at 21 U.S.C. § 355 note). 

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empirical study, requested by Congress, of the competitive effects of authorized 

generics.

6

 

The Commission has submitted briefs as amicus curiae in a number of 

proceedings concerning the legality of reverse-payment agreements.

7

 Courts, 

including the Supreme Court and this Court, have relied on FTC studies when 

resolving legal and policy issues.8 Pursuant to Fed. R. App. P. 29(a), the 

Commission respectfully submits this brief.

 

6 Federal Trade Commission Authorized Generic Drugs: Short-Term Effects and 

Long-Term Impact (2011), 

http://www.ftc.gov/os/2011/08/2011genericdrugreport.pdf (AG Report) (which 

analyzed data from industry and commercial sources, as well as business 

documents from more than 100 brand and generic pharmaceutical companies).

7 See, e.g., In re K-Dur Antitrust Litig., Nos. 10-2077, 10-2078, 10-2079, Brief of 

the Federal Trade Commission as Amicus Curiae Supporting Appellants and 

Urging Reversal (3d Cir. May 18, 2011).

8 See, e.g., Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 132 S. Ct. 1670, 1678 

(2012) (FTC study on generic pharmaceuticals); Granholm v. Heald, 544 U.S. 460, 

466–68, 490–92 (2005) (FTC study of Internet wine sales); Va. State Bd. of 

Pharmacy v. Va. Citizens Consumer Council, Inc., 425 U.S. 748, 754 n.11, 765-66

n.20 (1976) (FTC study concerning drug price advertising restrictions); In re: KDur Antitrust Litig., 686 F.3d 197, 218 (3d Cir. 2012) (FTC report describing 

patent litigation settlements under the Hatch-Waxman Act), cert. granted, vacated 

and remanded sub nom. Upsher-Smith Labs., Inc. v. Louisiana Wholesale Drug 

Co., Inc., 133 S. Ct. 2849 (2013).

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STATEMENT OF THE CASE 

1. Pharmaceutical Patents, Generic Entry and the Hatch-Waxman 

Amendments

Under the Federal Food, Drug, and Cosmetic Act (FDCA), as amended, 21 

U.S.C. § 301 et seq., the manufacturer of a new drug must obtain approval from 

the Food and Drug Administration (FDA) of a new drug application (NDA) before 

marketing the drug. 21 U.S.C. § 355(b).

9 A drug approved under the NDA process 

is often referred to as a “brand-name” drug. See generally Caraco, 132 S. Ct. at

1675-76. 

In 1984, Congress enacted the Hatch-Waxman Amendments, which 

established how the manufacturer of a “generic” version of a previously introduced 

brand-name drug may obtain approval of its product from the FDA using an 

Abbreviated New Drug Application (ANDA) allowing it more quickly to enter the 

market. To encourage generic entry as soon as warranted, the Amendments provide 

certain rights and procedures that apply when a company seeks FDA approval to 

market a generic product before expiration of the patent(s) claimed to cover the 

counterpart brand-name drug. In such cases, the generic applicant must certify that 

the patent in question is invalid or not infringed by the generic product (or both). 

 

9 All references in this brief to Title 21 are to the 2000 version of the United States 

Code. As used in this brief, “drug” refers to a drug, as defined in 21 U.S.C. 

§ 321(g)(1), that is regulated by the FDA under 21 U.S.C. § 355.

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This is known as a “paragraph-IV certification.” 21 U.S.C. § 355(j)(2)(A)(vii)(IV); 

see generally Caraco, 132 S. Ct. at 1676-77. 

The Hatch-Waxman Amendments encourage (though they do not require) 

the brand-name manufacturer to respond to a paragraph-IV certification by 

promptly suing the generic applicant for patent infringement. Such a suit triggers 

an automatic stay of FDA approval of the ANDA for 30 months. 21 U.S.C. 

§ 355(j)(5)(B)(iii). On the generic side, the Hatch-Waxman Amendments reward 

the first-filer of an ANDA containing a paragraph-IV certification with eligibility 

to be the exclusive generic provider of the drug for 180 days. See 21 U.S.C. 

§ 355(j)(5)(B)(iv). That exclusivity protects the first-filer from price competition 

from other ANDA filers during the period of exclusivity, and it gives that 

manufacturer a head start in reaching commercial arrangements with large 

purchasers. According to the generic pharmaceutical industry’s leading trade 

association, the “vast majority of potential profits for a generic drug manufacturer 

materialize during the 180-day exclusivity period.”10 Significantly, however, the 

180-day marketing exclusivity does not preclude the branded-drug company from 

marketing an AG, which is sold under the brand’s NDA as a generic without the 

 

10 Comments of Generic Pharm. Ass’n (GPhA) to FTC on Authorized Generic 

Drug Study 2 (Jun. 27, 2006), http://www.ftc.gov/policy/publiccomments/2006/06/27/comment-6. 

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trademark or brand name. See Teva Pharm. Indus. v. Crawford, 410 F.3d. 51, 54 

(D.C. Cir. 2005). 

2. The Economics of Generic Entry and Reverse-Payment 

Agreements

Of the approximately $329 billion domestic drug market in 2013, brandname drugs accounted for 14% of total prescriptions for drugs and biologics 

(which include products such as vaccines) but 71% of total spending.11 That 

disparity reflects, inter alia, the monopoly reward that sellers are able to reap from 

patented drug products.

When the first generic version of a given drug comes on the market, it is 

priced, on average, nearly 15% lower than the brand-name drug. See AG Report at 

ii-iii. Prices fall further when additional generic competitors enter so that, on 

average, generic prices end up at an 85% discount compared to what the brandname manufacturer was charging. FTC, Pay-for-Delay: How Drug Company PayOffs Cost Consumers Billions 8 (2010), 

http://www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf. Eventually, the brand-

 

11 IMS Inst. for Healthcare Informatics, Medicine Use and Shifting Costs of 

Healthcare: A Review of the Use of Medicines in the United States in 2013, at 30, 

40 (Apr. 2014), 

http://www.imshealth.com/portal/site/imshealth/menuitem.762a961826aad98f53c7

53c71ad8c22a/?vgnextoid=c01665b5b0845410VgnVCM10000076192ca2RCRD&

vgnextchannel=736de5fda6370410VgnVCM10000076192ca2RCRD&vgnextfmt=

default (requires free registration to download). 

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name drug loses on average about 90 percent of its market share (by unit sales) to 

its generic competitors. Ibid. Market competition from generic pharmaceuticals 

thus saves consumers many billions of dollars annually. See U.S. Gov’t 

Accountability Off., Report No. GAO-12-371R, Savings from Generic Drug Use 9-

11 (2012), http://www.gao.gov/assets/590/588064.pdf (discussing studies).

Given the significant disparity between monopoly and competitive drug 

prices, a brand-name manufacturer has strong incentives to induce its would-be 

generic competitor to forgo competition, and it can offer the generic competitor 

strong incentives to cooperate. As the diagram below illustrates, while the generic 

manufacturer will profit if it prevails in paragraph-IV litigation and enters the 

market, it will gain much less than the brand-name manufacturer stands to lose, 

and competition shrinks the total profits the two companies will earn in the 

aggregate. As a result, both the brand-name and generic manufacturers may benefit 

(at the expense of consumers) if the brand-name manufacturer agrees to share its 

monopoly profits in exchange for the generic manufacturer’s agreement to defer its 

own entry into the market and thereby keep overall profits at monopoly levels. See, 

e.g., C. Scott Hemphill, An Aggregate Approach to Antitrust: Using New Data and 

Rulemaking to Preserve Drug Competition, 109 Colum. L. Rev. 629, 635-36 

(2009). Indeed, such a deal may yield a net benefit to the brand-name manufacturer

even if it pays its would-be generic competitors more than they would earn if they 

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entered the market. Actavis, 133 S. Ct. at 2235 (citing C. Scott Hemphill, Paying

for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, 81 

N.Y.U. L. Rev. 1553, 1581 (2006)). 

These patent settlements can be anticompetitive when the brand-name 

manufacturer (the patent plaintiff) provides compensation to the generic company 

(the defendant) in addition to the parties’ agreement on a date for generic entry. 

The generic presumably provides some quid pro quo in these circumstances, 

regardless of whether the brand-name company has paid the generic in cash or in 

kind. In the absence of another explanation, that quid pro quo may well take the 

form of the generic company’s agreement to stay out of the market for some period 

in exchange for the branded-drug company’s payment. By contrast, if the parties 

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agree to a date on which generic entry will be permitted and go no further, the 

agreement is generally unproblematic because it presumably reflects merely the 

parties’ risk-adjusted views of the likely outcome of patent litigation.

3. The Economics of a No-AG Commitment 

In the earliest reverse-payment arrangements, the branded-drug company

typically compensated the generic company in cash for abandoning its patent 

challenge. After more than a dozen years of antitrust scrutiny, however, parties to 

such arrangements now use less obvious forms of compensation.12 An increasingly 

common mechanism involves the brand-name manufacturer’s agreement not to 

introduce an AG in competition with the generic manufacturer in exchange for the 

generic’s agreement to forestall its own entry.13

Brand-name companies often introduce AGs to stem the large losses that 

result from the rapid shift from sales of brand-name drugs to cheaper generic 

products. See AG Report at 12-14, 26-27. As the FTC’s AG Report describes, a 

 

12 Commentators have noted that after the FTC began challenging cash-only 

reverse-payment agreements, pharmaceutical companies then turned to other 

payment arrangements. See, e.g., Michael A. Carrier, Solving the Drug Settlement 

Problem: The Legislative Approach, 41 Rutgers L.J. 83, 98 (2009).

13 See FTC, Agreements Filed with the Federal Trade Commission Under the 

Medicare Prescription Drug, Improvement, and Modernization Act (FY 2012) at 2, 

http://www.ftc.gov/sites/default/files/documents/reports/agreements-filed-federaltrade-commission-under-medicare-prescription-drug-improvementand/130117mmareport.pdf. 

Case: 14-1243 Document: 003111601297 Page: 19 Date Filed: 04/28/2014
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first-filer generic company faces two primary financial effects when it must 

compete against an AG during the 180-day exclusivity period. First, the AG takes a 

significant share of generic sales away from the first-filer. Id. at 57-59. Second, 

competition between the first-filer generic and the AG drives down generic drug 

prices. Id. at 41-48. The FTC’s AG Report found that generic wholesale prices 

average 70 percent of the pre-entry brand-name drug price when the first-filer faces 

an AG, compared to 80 percent of the brand price when it does not. Id. at iii. 

Because of these two effects, “the presence of authorized generic competition 

reduces the first-filer generic’s revenues [during the 180-day exclusivity period] by 

40 to 52 percent, on average.” Id.; see also id. at 33.14 The financial effects of an 

AG on the first-filer generic are well known in the pharmaceutical industry.15

 

14 The report notes that the effects of an AG continue well after first-filer 

exclusivity expires, as “[r]evenues of the first-filer generic manufacturer in the 30 

months following exclusivity are between 53 percent and 62 percent lower when 

facing an [authorized generic].” Id. at iii.

15 According to the trade association for the generic companies: “To GPhA’s 

knowledge, the brands have launched an authorized generic during every 180-day 

generic exclusivity period since September 2003. Such products have improperly

deprived generic companies of literally hundreds of millions of dollars in sales. 

Indeed, the first generic to challenge the Paxil® patents lost revenues of nearly 

$400 million on this product alone when the brand launched an authorized generic 

during the true generic’s exclusivity period.” Generic Pharmaceutical Association

Letter to Senate Special Committee on Aging at 5 (Jul. 27, 2006), 

http://gpha.hfwebdev.com/sites/default/files/Smith%20and%20Kohl%20Letter.pdf. 

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Accordingly, a generic company enjoys substantial benefits from a No-AG

commitment in which the branded-drug company cedes all generic sales to the first

generic filer for a period of time. The FTC’s study found that, with a no-AG

commitment, “the first-filer’s revenue will approximately double” on average, 

compared to what the first-filer would make if it faced AG competition. AG Report

at vi. Given the blockbuster status of Lamictal, GSK’s agreement not to launch an 

AG version of Lamictal tablets during Teva’s exclusivity period may have 

increased Teva’s revenues by hundreds of millions of dollars. 

Teva itself acknowledged these economic realities in the 2008 annual report 

it filed with the Securities and Exchange Commission. According to Teva, its 

generic Lamictal tablet product generated “substantially increased” revenues 

because it did not face generic competition during the exclusivity period. See 

Teva Pharm. Indus. Ltd., Annual Report (Form 20-F, at 5 (Feb. 27, 2009), 

http://media.corporate-ir.net/media_files/IROL/73/73925/fr/2008/2008-ar-20f.pdf). 

As the FTC’s AG Report observed, the industry understands that a No-AG 

commitment can be a win-win for the brand and generic. For example, one 

branded-drug company’s analysis showed that such an agreement could maximize 

“the combined net present value of both companies’ products,” resulting in their 

sharing of supracompetitive profits. AG Report at 142 (emphasis added). The 

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potential victims in such arrangements are consumers, who end up paying far more 

than they otherwise would.

4. The Supreme Court’s Decision in FTC v. Actavis and the Current 

Litigation

The plaintiffs’ complaint in this case alleges that GSK induced Teva to stay 

out of the market for a defined period by promising that, once Teva finally did 

enter, GSK would not compete against Teva with authorized-generic versions of 

Lamictal. In 2012, the district court granted GSK’s and Teva’s motion to dismiss 

that complaint. The court declined to apply this Court’s analysis of reversepayment settlements in In re K-Dur Antitrust Litigation, 686 F.3d 197, 218 (2012), 

by incorrectly limiting the broad principles articulated in that ruling to cases 

involving the payment of cash. Plaintiffs appealed to this Court, which stayed the 

proceeding pending the U.S. Supreme Court’s ruling in FTC v. Actavis. 

In Actavis, the Supreme Court held that reverse-payment patent settlements 

can violate the antitrust laws and should be evaluated under the rule of reason. 133 

S. Ct. at 2237-38. The FTC’s complaint in that case alleged that the brand-name

manufacturer of the testosterone replacement drug AndroGel had agreed to pay 

two generic companies in exchange for their agreements to stay off the market for 

six years. The district court dismissed the complaint, and the Eleventh Circuit 

affirmed. It reasoned that the agreements were “immune from antitrust attack” if 

their anticompetitive effects were all within “the scope of the exclusionary 

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potential of the patent.” FTC v. Watson Pharm., Inc., 677 F.3d 1298, 1312 (11th

Cir. 2012). 

The Supreme Court reversed and, in the process, rejected this so-called 

“scope-of-the-patent” test and its resulting immunity for settlement agreements that 

do not exceed the exclusionary potential of the patent. 133 S. Ct. at 2230. The 

Court explained that its longstanding approach to assessing whether agreements 

between a patentee and potential competitors violate the antitrust laws considers 

“traditional antitrust factors such as likely anticompetitive effects, redeeming 

virtues, market power, and potentially offsetting legal considerations present in the

circumstances, such as here those related to patents.” Id. at 2231.

Shortly after the Supreme Court issued its decision, this Court remanded this 

case for further proceedings. Plaintiffs moved for reconsideration of the district 

court’s original decision granting the motion to dismiss. The court rejected 

plaintiffs’ motion and reaffirmed its original decision. It stated that the Actavis 

opinions “reek with discussion of payment of money” (slip op. at 13) and

concluded that the principles of Actavis apply only where there is a “payment of 

money.” Id. at 15. The district court also opined that, even if the rule of reason 

applied, this agreement would likely survive scrutiny. Id. at 18-19. 

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SUMMARY OF ARGUMENT

Actavis reaffirmed that patent settlements enjoy no broad antitrust immunity 

and are subject to traditional antitrust principles. The district court held that 

“Actavis scrutiny applies only to patent settlements that contain reverse payments” 

(slip op. at 11), and that, even then, “only to ‘reverse payments’ of money” (slip 

op. at 13). But Actavis did not establish a special rule limited to reverse-payment 

cases. Rather, the Supreme Court explained that its directive to consider traditional 

antitrust factors applies generally in cases challenging “patent-related settlement 

agreements” and “overly restrictive patent licensing agreements.” Id. at 2231-34.

The No-AG commitment here has all the hallmarks of the kind of settlement that 

the Supreme Court held is subject to antitrust scrutiny. 

Under the facts alleged here, Teva obtained something that it could not have 

won had it prevailed in its patent litigation: GSK’s promise not to compete using 

an AG during Teva’s exclusivity period. In return, Teva agreed to drop its 

challenge to GSK’s patent claiming Lamictal, thus preserving GSK’s monopoly 

profits, which GSK then shared with Teva by ceding all generic sales for a period 

of time to Teva through a No-AG commitment. 

As alleged, the No-AG commitment is thus a reverse payment that maintains 

“supracompetitive prices to be shared among the patentee and the challenger rather 

than face what might have been a competitive market.” Actavis, 133 S. Ct. at 2236. 

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The commitment “prevent[s] the risk of competition” to the branded-drug 

company (id.)—i.e., by eliminating the threat of a finding of patent invalidity or 

noninfringement—for a defined period, ensuring GSK’s monopoly prices during

that period. That commitment similarly guarantees that, even after generic entry, 

Teva can charge higher (supracompetitive) generic prices than if GSK competed 

with an AG during the 180-day exclusivity period, which the complaint alleges 

would have occurred here. Consolidated Am. Class Action Complaint (Compl.)

¶ 118, Case 2:12-cv-00995-WHW-CLW, Dkt. 55. This arrangement is a win-win 

for the parties, because it enlarges their aggregate pool of supracompetitive profits

in each of these two respects. But it does so at the expense of the consumers who 

must underwrite those profits in the form of higher drug prices. 

The district court elevated form over substance when it concluded that such 

reverse payments trigger antitrust scrutiny only when they are made in cash rather 

than in kind. That rationale would perversely allow parties settling patent litigation 

to avoid antitrust review simply by sharing their enhanced monopoly profits in a 

form other than cash. But whether such sharing takes the form of gold bullion, 

stocks, free goods, real estate, or—as here—an additional agreement not to 

compete, the potential for harm to consumers is present. In any event, a settlement 

with a No-AG commitment can violate the antitrust laws whether it is 

characterized as a reverse payment (in kind rather than in cash) or instead as a 

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reciprocal agreement not to compete. As Actavis confirms, mutual non-compete 

agreements involving patents, including this one, are subject to rule-of-reason 

scrutiny. The Court should thus reverse and remand the case for a proper rule-ofreason analysis.

ARGUMENT

I. ACTAVIS CONFIRMS THAT PATENT SETTLEMENTS BETWEEN 

A PATENTEE AND ITS POTENTIAL COMPETITOR ARE 

SUBJECT TO TRADITIONAL ANTITRUST PRINCIPLES

In Actavis, the Supreme Court rejected the scope-of-the patent test and 

directed courts to consider traditional antitrust factors. The holding is not a special 

rule limited to “reverse-payment” cases. As the Court noted, it is the approach that 

applies generally to antitrust cases challenging “patent-related settlement 

agreements” and “overly restrictive patent licensing agreements.” Actavis, 133 S. 

Ct. 2231-34.

16 The Court observed that the Sherman Act can impose “‘strict 

limitations on the concerted activities in which patent owners may lawfully 

 

16 The federal enforcement agencies’ 1995 Antitrust Guidelines for the Licensing of

Intellectual Property reflect this approach. See U.S. Department of Justice & 

Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual

Property at 7-8 (Apr. 6, l995). They discuss how antitrust analysis applies to a

wide variety of restraints that may appear in patent license agreements, explaining 

that traditional antitrust principles take into account the distinctive characteristics 

of intellectual property.

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engage.” Id. at 2232 (quoting United States v. Singer Mfg. Co., 374 U.S. 174, 197 

(1963)). 

The Supreme Court’s rejection of an antitrust immunity premised on the 

“scope-of-the-patent” approach was unequivocal. The Court explained that “it 

would be incongruous to determine antitrust legality by measuring the settlement’s 

anticompetitive effects solely against patent law policy, rather than by measuring 

them against procompetitive antitrust policies as well.” Actavis, 133 S. Ct. at 2231. 

“For one thing, to refer, as the [Eleventh] Circuit referred, simply to what the 

holder of a valid patent could do does not by itself answer the antitrust question.” 

Id.; see also K-Dur, 686 F.3d at 214 (presuming patent validity “assumes away the 

question being litigated in the underlying patent litigation”). Rather, “patent and 

antitrust policies are both relevant in determining the ‘scope of the patent 

monopoly’—and consequently antitrust law immunity—that is conferred by a 

patent.” Actavis, 133 S. Ct. at 2231.

Of course, as the Supreme Court observed, a patent holder might be able to 

exclude competition until patent expiration if the relevant patent is valid and 

infringed. But the Court rejected the argument “that that fact, or characterization, 

can immunize the agreement from antitrust attack.” Id. at 2230. The right of a 

patent holder to defend its patent against infringement does not entail a right to 

“pay a competitor to respect its patent and quit its patent invalidity or 

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noninfringement claim without any antitrust scrutiny whatever.” Id. at 2233. “It 

would be difficult to reconcile the proposed right with the patent-related policy of 

eliminating unwarranted patent grants so the public will not ‘continually be 

required to pay tribute to would-be monopolists without need or justification.’” Id.

(quoting Lear, Inc. v. Adkins, 395 U.S. 653, 670 (1969)). Indeed, the Court 

observed that the removal of an uncertain risk of invalidity or non-infringement, 

even if small, cannot justify an otherwise unexplained large reverse payment: 

The owner of a particularly valuable patent might contend, of course, 

that even a small risk of invalidity justifies a large payment. But, be 

that as it may, the payment (if otherwise unexplained) likely seeks to 

prevent the risk of competition. And, as we have said, that 

consequence constitutes the relevant anticompetitive harm.

Id. at 2236.

The district court overlooked these critical aspects of the Actavis decision. 

For example, the court repeatedly noted that the settlement agreement here 

permitted generic entry before patent expiration, as though that fact insulated the 

agreement from antitrust review. See slip op. at 12, 16, 18, 19. But Actavis

involved an agreement providing for entry five years before patent expiration. See 

133 S. Ct. at 2229. The Court nonetheless found that the agreement could violate 

the antitrust laws.

Similarly, the district court erred when it construed the statement in Actavis 

that patent litigants may, without risking antitrust liability, “settle in other ways, 

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for example, by allowing the generic manufacturer to enter the patentee’s market 

prior to the patent’s expiration, without the patentee paying the challenger to stay 

out prior to that point.” Slip op. at 12 (quoting Actavis, 133 S. Ct. at 2237). 

Contrary to the district court’s analysis, the Actavis decision does not mean that 

only cash-payment settlements receive antitrust scrutiny, much less that “[o]ther 

types of settlement are explicitly exempt” (slip op. at 12). Indeed, some of the

cases that the Court discussed involved agreements allowing for entry before 

patent expiration and provided no cash payment to the allegedly infringing party. 

Id. at 2232-33. These agreements were nonetheless found to violate the Sherman 

Act because they contained other aspects that raised antitrust concerns. See, e.g., 

United States v. New Wrinkle, 342 U.S. 371, 378 (1952) (finding that patent 

licenses granted under a settlement agreement could violate the antitrust laws if 

they are the means by which patent holders jointly regulate distribution and control 

prices). The Actavis Court’s reliance on those precedents would make no sense if 

the Court had intended its ruling to apply only to a narrow range of cases in which 

cash is exchanged. 

Thus, in the cited passage, the Supreme Court observed that competitors do 

not normally raise antitrust concerns if they agree on a date for generic entry but do 

not simultaneously agree that the brand-name manufacturer will compensate the 

generic company for staying out of the market until that date, thereby sharing 

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(while enlarging) their aggregate pool of monopoly profits. In such cases, this 

familiar settlement form generally reflects nothing more than arms-length 

bargaining between adverse parties based on their expectations about the likely 

outcome of the litigation. But a key lesson of Actavis is that “patent-related 

settlement agreements” and “overly restrictive patent licensing agreements” (133 

S. Ct. at 2231-34) are generally subject to review under traditional antitrust factors, 

and are not automatically “exempted” from antitrust liability. The district court 

erred in concluding otherwise.

II. A NO-AG COMMITMENT RAISES ALL THE SAME CONCERNS 

THAT THE ACTAVIS COURT IDENTIFIED AS A BASIS FOR 

ANTITRUST REVIEW

The district court held that the complaint did not state a claim under Actavis

because GSK did not pay Teva cash to refrain from market entry. Slip op. at 13-14. 

But a distinction between cash and non-cash payments makes no economic or legal 

sense. It is not the transfer of cash or the form of reverse payment that triggers 

antitrust concern; it is the impact of that payment on consumer welfare.

The Supreme Court has long emphasized that antitrust analysis turns on 

economic substance, not form.17 The district court ignored that basic principle. If 

 

17 See, e.g., American Needle, Inc. v. Nat’l Football League, 130 S. Ct. 2201, 2211 

(2010) (“substance, not form, should determine whether a[n] ... entity is capable of 

conspiring”) (quoting Copperweld Corp. v. Independence Tube Corp., 467 U.S. 

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the district court’s distinction between cash and non-cash consideration were valid, 

it would mean that the parties in Actavis itself could have avoided antitrust scrutiny 

altogether simply by replacing their cash payment with some non-cash 

consideration of equivalent value, such as bonds, museum art, or real property. 

And it would mean that all future parties contemplating anticompetitive reversepayment agreements could evade the holding of Actavis simply by choosing some 

non-cash equivalent as compensation to the generic for abandoning its patent 

challenge and agreeing to stay out of the market until a date certain. But antitrust 

principles are not so easily evaded. Substituting one form of consideration for 

another does not protect consumers from the harms of anticompetitive agreements 

between competitors, nor does it alter the antitrust analysis. 

In particular, “significant adverse effects on competition” can arise

whenever a settlement (1) provides the generic challenger something that it could 

not have obtained had it won its litigation, Actavis, 133 S. Ct at 2231, and (2) 

 

752, 773 n.21 (1984)); Eastman Kodak Co. v. Image Technical Servs., 504 U.S. 

451, 466-67 (1992) (in assessing market power, “this Court has examined closely 

the economic reality of the market at issue,” rather than resting on “formalistic 

distinctions”); see also K-Dur, 686 F.3d at 218 (requiring an antitrust analysis 

based on “economic realities” rather than labels); United States v. Dentsply Int’l, 

Inc., 399 F.3d 181, 189 (3d Cir. 2005) (“The Supreme Court on more than one 

occasion has emphasized that economic realities rather than a formalistic approach 

must govern review of antitrust activity.”); Weiss v. York Hosp., 745 F.2d 786, 815 

(3d Cir. 1984) (“Antitrust policy requires the courts to seek the economic 

substance of an arrangement, not merely its form.”). 

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allows the parties “to maintain supracompetitive prices to be shared among the 

patentee and the challenger rather than face what might have been a competitive 

market,” id.at 2236. The facts alleged here satisfy both conditions. The agreement 

in this case plainly gave Teva something it could not have won in the patent 

litigation: the ability to introduce its generic product with a period free from 

competition, not only from other ANDA generics, but from any AG. Moreover, the 

agreement maintains supracompetitive prices in which GSK and Teva both share.

GSK, as alleged, paid for that agreement with an economically 

consequential No-AG commitment. Under the FDCA, a brand may, as a matter of 

right, introduce an AG product at any time. Typically a brand does so during the 

six-month exclusivity window following generic entry, thus siphoning substantial 

revenues from the generic company with an exclusivity period and creating pricereducing competition that benefits consumers. When the brand agrees to forgo 

selling an AG, however, it essentially hands revenues it would have earned through 

AG sales back to the first-filer generic company and creates the ability for the 

generic entrant to price at supracompetitive levels. In turn, a brand-name

manufacturer is willing to forgo the profits it would earn with an AG only because 

of the monopoly profits secured by the generic’s agreement to stay off the market 

for a period of time. 

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The value of such a No-AG commitment is large. Typically, eliminating an 

AG during the first 180 days increases a first-filer’s revenue (such as Teva’s in this 

situation) by approximately 65 to 100 percent.

18 As shown in the graph below, 

during the first 180 days of generic sales, a first-filer would earn (based on 

conservative estimates) an additional $101 million dollars on a brand-name drug 

with one billion dollars in annual sales, if the branded-drug company agreed not to 

compete with an AG. That agreement would increase the first-filer’s revenue from 

$154 million to $255 million during the 180-day exclusivity period. 

 

18 The AG Report (at 59) found that the existence of an AG competitor reduced the 

first-filer’s revenue by approximately 40 to 50 percent during the first 180 days.

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These added revenues are indistinguishable in any legally or economically 

significant way from a reverse payment made in cash that the Court analyzed in

Actavis. The first-filer generic would not have realized these revenues had it won 

its patent litigation, and the brand is willing to forgo them only because the generic 

agreed to drop its patent challenge. The mere fact that the generic company earns 

these additional revenues does not make them comparable to the revenues it would 

earn in a settlement that compromises on an entry date without payment of any 

kind. In a no-AG deal, the branded-drug company enables the generic to earn these 

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added revenues by giving up its unqualified right to market an AG product, and 

thereby transfers economic value to the generic as surely as if it had written a 

check.19

Moreover, characterizing a No-AG commitment as a form of “exclusive 

license,” as the defendants in this case did below, does not change the analysis. 

Most exclusive licenses raise no antitrust concerns because they promote 

competition, such as by combining complementary assets. U.S. Department of 

Justice & Federal Trade Commission, Antitrust Guidelines for the Licensing of 

Intellectual Property, Section 3.1, at 17 (Apr. 6, 1995) (“While intellectual 

property licensing arrangements are typically welfare-enhancing and 

procompetitive, antitrust concerns may nonetheless arise.”). Here, however, any

“exclusive license” would simply take the form of a No-AG commitment,20 which

 

19 Indeed, because a No-AG commitment can approximately double the revenues 

generated by the first-filer, the value might be more than the first-filer could have 

earned by prevailing in the patent litigation. See AG Report at vi.

20 Exclusive licenses encompass a variety of types of arrangements and arise in a 

variety of contexts. Teva has wrongly claimed elsewhere that the FTC took the 

position in Actavis that an exclusive license can never be a reverse payment. See

Defendants’ Reply Brief in Support of Motion to Dismiss (Feb. 14, 2014) at 10, In 

re Effexor XR Antitrust Litig., No. 3:11-cv-5479 (D. N.J.). But whether a particular 

exclusive license amounts to a reverse payment must be evaluated on its facts. The 

FTC has consistently characterized No-AG commitments to first-filers as 

payments, regardless of whether the commitment took the form of an exclusive 

license. See, e.g., AG Report at 144-45. 

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does not promote competition and instead merely enlarges the pool of shared 

supracompetitive profits.

21 

III. RECIPROCAL AGREEMENTS NOT TO COMPETE CAN CAUSE 

ANTICOMPETITIVE HARM AND MAY VIOLATE THE 

ANTITRUST LAWS

As discussed, No-AG agreements are at least as worthy of antitrust scrutiny 

as agreements in which branded companies pay generic companies cash to stay out 

of the market. If anything, No-AG agreements raise even further antitrust concerns 

because they embody a second, additional agreement not to compete. In particular, 

No-AG commitments harm consumers first by inducing the generic to abandon its 

patent challenge, and then by producing inflated generic prices even after generic 

entry because of the absence of competition from an AG. See AG Report at ii-iii.22 

 

21 More generally, exclusive licensing agreements are not immune from antitrust 

scrutiny. As stated in the leading antitrust treatise, which is cited several times by 

the Supreme Court in Actavis: “Assuming the patent is valid, the Patent Act 

expressly permits exclusive licenses, but this fact alone does not render them 

immune from antitrust scrutiny.” 12 Phillip Areeda & Herbert Hovenkamp, 

Antitrust Law ¶ 2046, at 330 (3d ed. 2012) (footnotes omitted); see also Standard 

Oil Co. (Indiana) v. United States, 283 U.S. 163 (1931) (applying rule-of-reason 

antitrust scrutiny to cross-licensing agreements); Orson, Inc. v. Miramax Film 

Corp., 79 F.3d 1358, 1372 (3d Cir. 1996) (subjecting exclusive licenses to rule of 

reason analysis). “Though the grant of an exclusive license is not per se a violation 

of the antitrust laws, it may be an instrument by which an unlawful restraint of 

trade or a monopoly is created.” Benger Labs. Ltd. v. R.K. Laros Co., 209 F. Supp. 

639, 648 (E.D. Pa. 1962).

22 That second phase of consumer harm may occur all in the span of six months, as 

the district court observed, slip op. at 18, but the relative brevity of that period is 

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Such agreements can be viewed not only as reverse payments, but also as 

reciprocal agreements not to compete, which are independently subject to rule-ofreason scrutiny in this setting. See Actavis, 133 S. Ct. at 2237; see also Standard 

Oil Co. (Indiana) v. United States, 283 U.S. 163 (1931) (analyzing terms of patent 

settlement agreement under the rule of reason); Moraine Products v. ICI America, 

Inc., 538 F.2d 134, 144-46 (7th Cir. 1976) (exclusive patent license subject to ruleof-reason analysis). Indeed, in Actavis, the Supreme Court cited its most recent 

precedent involving reciprocal agreements not to compete, Palmer v. BRG of Ga., 

Inc., 498 U.S. 46 (1990), in framing the key question about reverse-payment 

agreements—“whether such an agreement can sometimes unreasonably diminish 

competition in violation of the antitrust laws.” See Actavis, 133 S. Ct. at 2227.

In this case, the plaintiffs have alleged that GSK and Teva entered into

reciprocal agreements not to compete. At the time of the settlement, GSK faced a 

risk of competition from Teva, and Teva faced a risk of authorized-generic 

competition during its exclusivity period. Under the settlement, Teva agreed not to 

compete against GSK for Lamictal tablets from February 2005 to July 2008, and 

GSK agreed not to market a generic form of the Lamictal tablet in competition 

 

no basis for assuming, as the court did (id.), that such harm is insubstantial. To the 

contrary, it can account for tens of millions of dollars of consumer losses, as 

discussed above.

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with Teva from July 2008 to January 2009. Compl. ¶ 93 (Teva agreed not to 

market generic until July 2008); ¶ 86 (GSK agreed not to launch AG until January 

2009). When, as the complaint alleges here, each of those agreements allows the 

remaining competitor to charge supracompetitive prices, such agreements can 

violate the antitrust laws. As alleged, these are simply agreements by potential 

competitors to stay out of each other’s backyard.

23 

 

23 It is not necessary to find that the two companies previously competed in a 

market to find such agreement not to compete unlawful, because “prevent[ing] the 

risk of competition ... constitutes the relevant anticompetitive harm.” Actavis, 133 

S. Ct. at 2236. 

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CONCLUSION

The Court should reverse the district court’s decision and remand the case 

for further proceedings consistent with the Court’s decision.

Respectfully submitted,

Deborah L. Feinstein

Director

Stephen Weissman

Deputy Director

Markus H. Meier

Assistant Director

Bradley S. Albert

Deputy Assistant Director

Jamie R. Towey

Attorney

Bureau of Competition

FEDERAL TRADE COMMISSION

600 Pennsylvania Avenue NW

Washington, DC 20580

Jonathan E. Nuechterlein

General Counsel

John F. Daly

Deputy General Counsel for Litigation

/s/ Mark S. Hegedus

Mark S. Hegedus

Attorney

Office of the General Counsel

FEDERAL TRADE COMMISSION

600 Pennsylvania Avenue NW

Washington, DC 20580

202-326-2115

mhegedus@ftc.gov

Attorneys for Federal Trade 

Commission

April 28, 2014

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COMBINED CERTIFICATES – CASE 14-1243

BRIEF OF FEDERAL TRADE COMMMISSION AS AMICUS CURAIE

IN SUPPORT OF PLAINTIFFS-APPELLANTS

I hereby certify that:

1. This brief complies with the type-volume limitation of Fed. R. Civ. P. 

32(a)(7)(B). It has 6,600 words as counted by Microsoft Word 2010.

2. The electronic version of this brief is identical to the version sent in hard

copy to this Court.

3. The electronic version of this brief is in PDF and was scanned using 

Symantec Endpoint Protection Version 12.1.1000.157 with virus definitions 

updated April 28, 2014. No viruses were detected.

4. I filed the electronic version of this brief with the Court via the CM/ECF 

system. The Notice of Docket Activity generated by CM/ECF system 

constitutes service upon all Filing Users in this proceeding. The docket for 

this proceeding indicates that all parties are Filing Users.

5. I have caused to be sent to the Court seven hard copies of this brief via 

FedEx Next Day Delivery to:

Clerk of Court

U.S. Court of Appeal, Third Circuit

Independence Mall West

601 Market Street 

Philadelphia, PA 19106

6. I am a member of the bar of this Court.

DATE: April 28, 2014 /s/ Mark S. Hegedus

 Mark S. Hegedus

Case: 14-1243 Document: 003111601297 Page: 40 Date Filed: 04/28/2014