2015 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-26-2015

King Drug Co of Florence Inc v. Smithkline

Beecham Corporation

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"King Drug Co of Florence Inc v. Smithkline Beecham Corporation" (2015). 2015 Decisions. Paper 668.

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

___________

No. 14-1243

___________

KING DRUG COMPANY OF FLORENCE, INC.;

LOUISIANA WHOLESALE DRUG CO., INC.,

on behalf of itself and all others similarly situated, 

 Appellants

v.

SMITHKLINE BEECHAM CORPORATION, doing 

business as GLAXOSMITHKLINE; TEVA 

PHARMACEUTICAL INDUSTRIES LTD.; TEVA 

PHARMACEUTICALS

_______________________

On Appeal from the United States District Court

for the District of New Jersey

D.C. Civil Action No. 2-12-cv-00995

District Judge: Honorable William H. Walls

______________

Argued: November 19, 2014

Before: AMBRO, SCIRICA, and ROTH, Circuit Judges.
2

(Opinion Filed: June 26, 2015)

Bruce E. Gerstein, Esq. [ARGUED]

Kimberly Hennings, Esq.

Joseph Opper, Esq.

Garwin Gerstein & Fisher

Wall Street Plaza

88 Pine Street, 10th Floor

New York, NY 10036

Peter S. Pearlman, Esq.

Cohn, Lifland, Pearlman, Herrmann & Knopf

Park 80 West – Plaza One

250 Pehle Avenue, Suite 401

Saddle Brook, NJ 07663

Counsel for Appellants

Donald L. Bell, II, Esq.

National Association of Chain Drug Stores

413 North Lee Street

Alexandria, VA 22314

Barry L. Refsin, Esq.

Hangley, Aronchick, Segal, Pudlin & Schiller

One Logan Square

18th & Cherry Streets, 27th Floor

Philadelphia, PA 19103

Counsel for Amicus Curiae National Association of 

Chain Drug Stores Inc.
3

Steve D. Shadowen, Esq.

Hilliard & Shadowen

39 West Main Street

Mechanicsburg, PA 17055

Counsel for Amicus Curiae 53 Law, Economics, and 

Business Professors, The American Antitrust Institute and 

Consumers Union 

Peter Kohn, Esq.

Richard D. Schwartz, Esq.

Faruqi & Faruqi

101 Greenwood Avenue

Suite 600

Jenkintown, PA 19046

David F. Sorensen, Esq.

Berger & Montague

1622 Locust Street

Philadelphia, PA 19103

Counsel for Amicus Curiae Professional Drug 

Company, Inc.

Mark S. Hegedus, Esq. [ARGUED]

Federal Trade Commission

MS-582

600 Pennsylvania Avenue, N.W.

Washington, DC 20580

Counsel for Amicus Curiae Federal Trade 

Commission
4

Crystal M. Utley, Esq.

Office of Attorney General of Mississippi

Consumer Protection Division

P.O. Box 22947

Jackson, MS 39225

Counsel for Amicus Curiae State of Mississippi, State 

of Alaska, State of Arkansas, State of Arizona, State of 

California, State of Connecticut, State of Delaware, State of 

Hawaii, State of Idaho, State of Illinois, State of Indiana,

State of Kentucky, State of Massachusetts, State of Maryland, 

State of Michigan, State of Minnesota, State of New 

Hampshire, State of New Mexico, State of New York, State of 

Nevada, State of Ohio, Commonwealth of Pennsylvania, State 

of Rhode Island, State of Tennessee, State of Texas, State of 

Utah, State of Vermont, State of Washington

Douglas S. Eakeley, Esq.

Joseph A. Fischetti, Esq.

Lowenstein Sandler

65 Livingston Avenue

Roseland, NJ 07068

Barbara W. Mather, Esq. [ARGUED]

Robin P. Sumner, Esq.

Pepper Hamilton

18th & Arch Streets

3000 Two Logan Square

Philadelphia, PA 19103

Counsel for Appellee Smithkline Beecham Corporation
5

Jonathan D. Janow, Esq.

John C. O’Quinn, Esq.

Karen N. Walker, Esq.

Kirkland & Ellis

655 15th Street, N.W.

Suite 1200

Washington, DC 20005

Jay P. Lefkowitz, Esq. [ARGUED]

Kirkland & Ellis

601 Lexington Avenue

New York, NY 10022

Counsel for Appellees TEVA Pharmaceutical 

Industries LTD and TEVA Pharmaceuticals

Ryan Z. Watts, Esq.

Arnold & Porter

555 Twelfth Street, N.W.

Washington, DC 20004

Counsel for Amicus Curiae Pharmaceutical Research 

and Manufacturers of America

Daniel S. Francis, Esq.

Ryan A. Shores, Esq.

Hunton & Williams

2200 Pennsylvania Avenue, N.W.

Washington, DC 20037

Counsel for Amicus Curiae National Association of 

Manufacturers
6

Leslie E. John, Esq.

Ballard Spahr

1735 Market Street

51st Floor

Philadelphia, PA 19103

Counsel for Amicus Curiae Professor W. David 

Bradford, University of Georgia, Professor Ian Cockburn, 

Boston University, Pierre Yves Cremieux, Analysis Group, 

Inc., Professor Henry G. Grabowski, Duke University, Paul 

E. Greenberg, Analysis Group, Inc., Professor James W. 

Hughes, Bates College, George Kosicki, Analysis Group, Inc., 

Professor Tracy R. Lewis, Duke University, Professor Sean

Nicholson, Cornell University, Bruce E. Stangle, Analysis 

Group, Inc., Sally D. Woodhouse, Cornerstone Research, 

Professor Michael K. Whoglgenant, North Caroline State 

University

Brian T. Burgess, Esq.

William M. Jay, Esq.

Goodwin Procter

901 New York Avenue, N.W. 

Suite 900 East

Washington, DC 20001

Christopher T. Holding, Esq.

Goodwin Procter

53 State Street

Exchange Place

Boston, MA 02109
7

Counsel for Amicus Curiae Generic Pharmaceutical 

Association

_________________

OPINION OF THE COURT

_________________

SCIRICA, Circuit Judge.

In this appeal from the grant of a motion to dismiss for 

failure to state a rule-of-reason claim under Sections 1 and 2 

of the Sherman Act under Federal Rule of Civil Procedure 

12(b)(6), we are asked to determine whether FTC v. Actavis, 

133 S. Ct. 2223 (2013), covers, in addition to reverse cash 

payments, a settlement in which the patentee drug 

manufacturer agrees to relinquish its right to produce an 

“authorized generic” of the drug (“no-AG agreement”) to 

compete with a first-filing generic’s drug during the generic’s 

statutorily guaranteed 180 days of market exclusivity under 

the Hatch-Waxman Act1as against the rest of the world. 

In Actavis, the Supreme Court held that unexplained 

large payments from the holder of a patent on a drug to an 

alleged infringer to settle litigation of the validity or 

infringement of the patent (“reverse payment”) “can 

 

1 Hatch-Waxman is the short name for the Drug Price 

Competition and Patent Term Restoration Act of 1984, Pub. 

L. No. 98-417, 98 Stat. 1585. 
8

sometimes violate the antitrust laws.” Id. at 2227. The Court 

rejected the near-irrebuttable presumption, known as the 

“scope of the patent” test, that a patentee can make such 

reverse payments so long as it is paying potential competitors 

not to challenge its patent within the patent’s lifetime. 

Plaintiffs here, direct purchasers of the brand-name 

drug Lamictal, sued Lamictal’s producer, Smithkline 

Beecham Corporation, d/b/a GlaxoSmithKline (“GSK”), and 

Teva Pharmaceutical Industries Ltd. (“Teva”2), a 

manufacturer of generic Lamictal, for violation of Sections 1 

and 2 of the Sherman Act, 15 U.S.C. §§ 1 & 2.3In earlier 

 

2

“Teva” refers collectively to Teva Pharmaceutical 

Industries Ltd. and its subsidiary Teva Pharmaceuticals USA, 

Inc. 

3 Plaintiffs bring their Sherman Act claims under Sections 

4 (damages) and 16 (injunctive relief) of the Clayton Act, 15 

U.S.C. §§ 15 & 26, respectively. The Clayton Act requires “a 

plaintiff to have standing to bring an antitrust claim.” 

Angelico v. Lehigh Valley Hosp., Inc., 184 F.3d 268, 273 (3d 

Cir. 1999). At the motion-to-dismiss stage, “a plaintiff must 

allege more than that it has suffered an injury causally linked 

to a violation of the antitrust laws.” Pace Elecs., Inc. v. 

Canon Computer Sys., Inc., 213 F.3d 118, 120 (3d Cir. 2000). 

The plaintiff must also “allege antitrust injury, ‘which is to 

say injury of the type the antitrust laws were intended to 

prevent and that flows from that which makes defendants’ 

acts unlawful.’” Id. (quoting Brunswick Corp. v. Pueblo 

Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977)). As noted 

below, we do not here address the issue of antitrust injury, nor 

do we preclude consideration of the issue on remand. See

infra notes 20 & 35 and accompanying text. 
9

litigation, Teva had challenged the validity and enforceability 

of GSK’s patents on lamotrigine, Lamictal’s active 

ingredient. Teva was also first to file an application with the 

FDA alleging patent invalidity or nonenforceability and 

seeking approval to produce generic lamotrigine tablets and 

chewable tablets for markets alleged to be annually worth $2 

billion and $50 million, respectively. If the patent suit 

resulted in a judicial determination of invalidity or 

nonenforceability—or a settlement incorporating such 

terms—Teva would be statutorily entitled to a valuable 180-

day period of market exclusivity, during which time only it 

and GSK could produce generic lamotrigine tablets. (The 

relevant statute permits the brand to produce an “authorized 

generic” during the exclusivity period. Mylan Pharm., Inc. v. 

FDA, 454 F.3d 270, 276-77 (4th Cir. 2006); Teva Pharm. 

Indus. Ltd. v. Crawford, 410 F.3d 51, 55 (D.C. Cir. 2005); see 

also Sanofi-Aventis v. Apotex Inc., 659 F.3d 1171, 1175 (Fed. 

Cir. 2011).) 

After the judge presiding over the patent litigation 

ruled the patent’s main claim invalid, GSK and Teva settled. 

They agreed Teva would end its challenge to GSK’s patent in 

exchange for early entry into the $50 million annual 

lamotrigine chewables market and GSK’s commitment not to 

produce its own, “authorized generic” version of Lamictal 

tablets for the market alleged to be worth $2 billion annually. 

Plaintiffs contend that this “no-AG agreement” qualifies as a 

“reverse payment” under Actavis because, like the cash 

reverse payments the Court there warned could face antitrust 

scrutiny, GSK’s no-AG commitment was designed to induce 

Teva to abandon the patent fight and thereby agree to 

eliminate the risk of competition in the $2 billion lamotrigine 
10

tablet market for longer than the patent’s strength would 

otherwise permit. 

We believe this no-AG agreement falls under Actavis’s 

rule because it may represent an unusual, unexplained reverse 

transfer of considerable value from the patentee to the alleged 

infringer and may therefore give rise to the inference that it is 

a payment to eliminate the risk of competition. As the Court 

noted, these kinds of settlements are subject to the rule of 

reason. 

I.

“A patent . . . is an exception to the general rule 

against monopolies and to the right to access to a free and 

open market.” Walker Process Equip., Inc. v. Food Mach. & 

Chem. Corp., 382 U.S. 172, 177 (1965) (quoting Precision 

Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 

816 (1945)). The Constitution’s “Patent Clause itself reflects 

a balance between the need to encourage innovation and the 

avoidance of monopolies which stifle competition without 

any concomitant advance in the ‘Progress of Science and 

useful Arts.’” Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 

489 U.S. 141, 146 (1989) (quoting U.S. Const. art. I., § 8, cl. 

8). In turn, “[f]rom their inception, the federal patent laws 

have embodied a careful balance between the need to promote 

innovation and the recognition that imitation and refinement 

through imitation are both necessary to invention itself and 

the very lifeblood of a competitive economy.” Id.; see X 

Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law

¶ 1780a (3d ed. 2011) (“Patent law . . . serves the interests of 

consumers by protecting invention against prompt imitation 

in order to encourage more innovation than would otherwise 
11

occur.”). A patent, consequently, “is a special privilege 

designed to serve the public purpose of promoting the 

‘Progress of Science and useful Arts.’” Precision Instrument 

Mfg. Co., 324 U.S. at 816. 

With the Drug Price Competition and Patent Term 

Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585, 

commonly known as the Hatch-Waxman Act, Congress 

attempted to balance the goal of “mak[ing] available more 

low cost generic drugs,” H.R. Rep. No. 98-857, pt. 1, at 14-15 

(1984), reprinted in 1984 U.S.C.C.A.N. 2647, 2647-48, with 

the value of patent monopolies in incentivizing beneficial 

pharmaceutical advancement, see H.R. Rep. No. 98-857, pt. 

2, at 30 (1984), reprinted in 1984 U.S.C.C.A.N. 2686, 2714. 

The Act seeks to accomplish this purpose, in part, by 

encouraging “manufacturers of generic drugs . . . to challenge 

weak or invalid patents on brand name drugs so consumers 

can enjoy lower drug prices.” S. Rep. No. 107-167, at 4 

(2002). The resulting regulatory framework has the following 

four relevant features identified by the Supreme Court in 

Actavis, 133 S. Ct. at 2227-29.

First, a new drug—that is, a pioneer, “brand-name” 

drug—cannot be introduced until it is approved by the Food 

and Drug Administration (“FDA”). 21 U.S.C. § 355(a). A 

New Drug Application (“NDA”) requires the applicant to 

submit, among other things, “full reports of investigations 

which have been made to show whether or not such drug is 

safe for use and whether such drug is effective in use,” id.

§ 355(b)(1)(A), as well as comprehensive information about 

the drug, id. § 355(b)(1). This reporting requirement entails 

“a long, comprehensive, and costly testing process.” Actavis, 

133 S. Ct. at 2228.
12

Second, the Hatch-Waxman Act facilitates the 

development of generic drugs by allowing an applicant to file, 

for new drugs shown to be “bioequivalent” to a drug 

previously approved by the FDA, 21 U.S.C. 

§ 355(j)(2)(A)(iv), a less onerous and less costly 

“Abbreviated New Drug Application” (“ANDA”) in lieu of 

an NDA. See id. § 355(j); Actavis, 133 S. Ct. at 2228. The 

ANDA process “allow[s] the generic to piggy-back on the 

pioneer’s approval efforts . . . , thereby furthering drug 

competition.” Actavis, 133 S. Ct. at 2228 (citing Caraco 

Pharm. Labs., Ltd. v. Novo Nordisk A/S, 132 S. Ct. 1670, 

1676 (2012)).4

Third, Hatch-Waxman “sets forth special procedures 

for identifying, and resolving, related patent disputes.” Id. A 

new drug applicant must list information on any patents 

issued on the drug’s composition or methods of use. See 21 

U.S.C. § 355(b)(1); Caraco, 132 S. Ct. at 1676. If the FDA 

approves the new drug, it publishes this information, without 

 

4

“Rather than providing independent evidence of safety 

and efficacy, the typical ANDA shows that the generic drug 

has the same active ingredients as, and is biologically 

equivalent to, the brand-name drug.” Caraco, 132 S. Ct. at 

1676; see 21 U.S.C. § 355(j) (ANDA requirements). Before 

Hatch-Waxman, a company desiring to produce a generic 

version of a drug approved after 1962 had to conduct its own 

testing and trials to show that its generic version was safe and 

effective for human use. H.R. Rep. No. 98-857, pt. 1, at 16-

17. 
13

verification, in its Orange Book.

5 Caraco, 132 S. Ct. at 1676. 

In turn, any manufacturer filing an ANDA to produce a 

generic version of that pioneer drug must consult the Orange 

Book and “assure the FDA that [the] proposed generic drug 

will not infringe the brand’s patents.” Id.6 As relevant here, 

the manufacturer may tender that assurance with a “paragraph 

IV” certification that the relevant listed patents are “invalid or 

will not be infringed by the manufacture, use, or sale of the 

[generic] drug.” 21 U.S.C. § 355(j)(2)(A)(vii)(IV). But 

“[f]iling a paragraph IV certification means provoking 

litigation,” Caraco, 132 S. Ct. at 1677, because the patent 

statute treats paragraph IV certification as a per se act of 

infringement, see 35 U.S.C. § 271(e)(2)(A).7 The patentee 

 

5 The volume, officially known as Approved Drug 

Products with Therapeutic Equivalence Evaluations, is 

available at http://www.fda.gov/cder/ob/. See generally, e.g., 

21 U.S.C. § 355(b)(1) (“Upon approval of the application, the 

Secretary shall publish information submitted . . . .”); Caraco, 

132 S. Ct. at 1676.

6 Although the FDA performs no independent patent 

review, it cannot approve an ANDA if the proposed generic 

would infringe any of the brand’s asserted patents. See

Caraco, 132 S. Ct. at 1676.

7 Further, an ANDA applicant making a paragraph IV 

certification must notify any patent holder within twenty days 

of the FDA’s confirmation of its ANDA filing, 21 U.S.C. 

§ 355(j)(2)(B)(ii), (iii), “of the factual and legal basis of [its] 

opinion . . . that the patent is invalid or will not be infringed,” 

id. § 355(j)(2)(B)(iv)(II). See also 21 C.F.R. § 314.52 

(“Notice of certification of invalidity or noninfringement of a 

patent”). 
14

then has an incentive to sue within 45 days in order to trigger 

a 30-month stay of the FDA’s potential approval of the 

generic “while the parties litigate patent validity (or 

infringement) in court. If the courts decide the matter within 

that period, the FDA follows that determination; if they do 

not, the FDA may go forward and give approval to market the 

generic product.” Actavis, 133 S. Ct. at 2228 (citing 21 U.S.C. 

§ 355(j)(5)(B)(iii)).8

“Fourth, Hatch-Waxman provides a special incentive 

for a generic to be the first to file an Abbreviated New Drug 

Application taking the paragraph IV route.” Id. at 2228-29. 

From when it first begins marketing its drug or when a court 

enters judgment finding the challenged patent invalid or 

unenforceable, the first-filing generic enjoys a 180-day period 

of exclusivity during which no other generic manufacturer 

can enter the market. See 21 U.S.C. § 355(j)(5)(B)(iii), (iv).9

 

8 Hatch-Waxman “allows competitors, prior to the 

expiration of a patent, to engage in otherwise infringing 

activities necessary to obtain regulatory approval.” Eli Lilly & 

Co. v. Medtronic, Inc., 496 U.S. 661, 671 (1990); see 35 

U.S.C. § 271(e)(1). As long as a generic applicant does not 

launch its generic “at risk” (i.e., after FDA approval after 30 

months but before a determination of patent validity), it will 

not be forced to pay money damages. See 35 U.S.C. 

§ 271(e)(4)(C). This feature also explains “the creation of a 

highly artificial act of infringement”—the paragraph IV 

certification—to permit the brand and generic to litigate 

patent validity. Eli Lilly, 496 U.S. at 678.

9 Under current law, the specific mechanism is that an 

application by a non–first filer “shall be made effective on the 

date that is 180 days after the date of the first commercial 

marketing of the drug . . . by any first applicant.” 21 U.S.C. 
15

This exclusivity period belongs to first-filing ANDA 

applicants10 alone and is nontransferable. See id.

§ 355(j)(5)(D); Actavis, 133 S. Ct. at 2229. The period does 

not, however, prevent the brand-patentee from marketing its 

own “authorized generic.” Mylan Pharm., 454 F.3d at 276-

77; Teva Pharm. Indus., 410 F.3d at 55; see also SanofiAventis, 659 F.3d at 1175.

II.

A.11

 

§ 355(j)(5)(B)(iv)(I). But the parties appear to agree that 

because the Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003, Pub. L. No. 108-173, 

§ 1102(b)(1), amended Hatch-Waxman’s exclusivity 

provisions only for subsequent ANDAs, the exclusivity rules 

in place in 2002 control. See Teva Br. 8 & n.1. Under those 

rules, the 180-day period begins from the earlier of a 

generic’s launching “at risk” or a court’s finding the patent 

invalid or unenforceable. See 21 U.S.C. § 355(j)(5)(B)(iv) 

(2002).

10 “[A]ccording to the Food and Drug Administration, all 

manufacturers who file on the first day are considered ‘first 

applicants’ who share the exclusivity period. Thus, if ten 

generics file an application to market a generic drug on the 

first day, all will be considered ‘first applicants.’” Actavis, 

133 S. Ct. at 2246 (Roberts, C.J., dissenting) (citing 21 U.S.C. 

§ 355(j)(5)(B)(iv)(II)(bb)). 

11 The facts recounted in this opinion are taken from the 

well-pleaded, nonconclusory factual allegations in plaintiffs’ 
16

Plaintiffs, a putative class represented by King Drug 

Company of Florence, Inc., and Louisiana Wholesale Drug 

Co., Inc., are direct purchasers of Lamictal from Defendant 

GSK. GSK pioneered Lamictal, a brand-name drug used to 

treat epilepsy and bipolar disorder, and secured U.S. Patent 

No. 4,602,017 (“the ’017 patent”) on lamotrigine, Lamictal’s 

active ingredient. The patent expired on July 22, 2008. GSK 

sells both Lamictal tablets and Lamictal chewable tablets, 

although most Lamictal prescriptions are for the nonchewable 

tablets (most relevant here). Lamictal tablet sales exceeded $2 

billion between March 2007 and 2008, while chewable sales 

measured about $50 million over a yearlong span around 

2005. 

In April 2002, Defendant Teva filed the first paragraph 

IV ANDAs to market generic lamotrigine tablets and 

chewables. Teva certified that its proposed generics did not 

infringe the ’017 patent and/or that the ’017 patent was 

unenforceable. GSK soon sued in federal court, see

Complaint, Smithkline Beecham Corp. v. Teva Pharm. USA, 

Inc., No. 02-3779 (D.N.J. Aug. 5, 2002) (ECF No. 1), staying 

the FDA’s approval of Teva’s ANDAs for 30 months. In late 

January 2005, the parties tried the patent case before Judge 

Bissell, who ruled that the patent’s main claim, for the 

invention of lamotrigine, was invalid. Plaintiffs allege that “it 

was highly likely that Teva would prevail with respect to the 

remaining patent claims,” which “were extremely weak in 

view of Judge Bissell’s ruling that claim 1 was invalid.” 

 

Amended Complaint and all reasonable inferences to be 

drawn therefrom. See Ashcroft v. Iqbal, 556 U.S. 662, 678-79 

(2009). 
17

In February 2005, the parties settled their dispute 

before Judge Bissell could rule on the validity of the ’017 

patent’s remaining claims. GSK agreed to allow Teva to 

market generic lamotrigine chewables by no later than June 1, 

2005, or 37 months before the patent was to expire on July 

22, 2008.12 GSK further agreed to permit Teva to sell generic 

lamotrigine tablets on July 21, 2008, if GSK received a 

“pediatric exclusivity” extension,13 or March 1, 2008, if GSK 

did not. (With a pediatric exclusivity extension, the patent 

would still have expired on July 22, 2008, but the FDA would 

have been foreclosed from approving ANDAs filed by 

competing generics until January 22, 2009. See generally

AstraZeneca AB v. Apotex Corp., 782 F.3d 1324, 1341, 1343 

(Fed. Cir. 2015).) 

Most relevant here, GSK also agreed not to market an 

authorized generic until January 2009, after Teva’s 180-day 

market exclusivity period was to expire (the “no-AG 

agreement” component of the settlement). In fact, plaintiffs 

allege, Teva “had an interest in delaying a final court decision 

finding the ’017 patent invalid” because the FDA had not yet 

approved Teva’s ANDAs, and Teva therefore wanted time to 

secure FDA approval so it could “take advantage of its 

valuable 180-day period,” which would have begun to run 

 

12 Because Teva’s ANDAs had not yet been approved, 

GSK also agreed to supply Teva with lamotrigine chewables. 

13 See generally 21 U.S.C. § 355a(c)(2)(B) (2002) (then in 

effect) (providing for situations in which the FDA may not 

approve ANDAs for an additional six months if the patent 

holder completes certain studies “relating to the use of [the] 

drug in the pediatric population”). 
18

with a final judgment finding the patent invalid or 

noninfringed. 

In exchange, Teva agreed to drop its litigation 

challenging GSK’s patent and, plaintiffs allege, delay its 

entry into the lamotrigine tablet market. If not for the 

consideration it received, plaintiffs allege, Teva would have 

launched its generic lamotrigine tablet “at risk” after 

receiving FDA approval (which occurred later, in August 

2006), even if Judge Bissell had not yet ruled the patent 

invalid (as, they allege, he was likely to do). Indeed, Teva 

was later to assert, in other litigation against GSK, that GSK’s 

no-AG agreement was “an important component of the 

settlement between the parties and formed part of the 

inducement to Teva to relinquish the rights and defenses it 

was asserting against GSK in the Patent Litigation.” JA 76 

(alteration and emphases omitted).14 Judge Bissell approved 

the parties’ settlement and dismissed the case on April 4, 

2005. 

B.

 

14 In July 2008, “[j]ust prior to Teva launching its generic, 

GSK approached various pharmacies, group purchasing 

organizations, and long-term care facilities and proposed that 

they purchase and distribute GSK’s Lamictal at a generic 

product price.” Teva Pharm. Indus. Ltd. v. SmithKline 

Beecham Corp., No. 08-3706, 2009 WL 1687457, at *2 

(D.N.J. June 16, 2009). Teva sued GSK to attempt to prevent 

GSK from “develop[ing] a generic of lamotrigine” because 

the parties’ settlement agreement “made clear that [Teva’s] 

right [to sell generic lamotrigine] was exclusive—including 

as to GSK and its affiliates.” Id. at *1, *4.
19

Plaintiffs here, direct purchasers of Lamictal from 

GSK, sued GSK and Teva in federal court in February 2012 

and filed their Consolidated Amended Class Action 

Complaint the following June. They allege that defendants, 

by their no-AG agreement—in effect, a “reverse payment” 

from GSK to Teva—violated section 1 of the Sherman Act by 

conspiring to delay generic competition for Lamictal tablets 

and section 2 by conspiring to monopolize the lamotrigine 

tablet market. GSK and Teva moved to dismiss, countering 

that, under our decision in In re K-Dur Antitrust Litigation, 

686 F.3d 197 (3d Cir. 2012),15 only cash payments constitute 

actionable “reverse payments.” 

In K-Dur, we charted a course different from that set 

by several other courts of appeals by rejecting the “scope of 

the patent” test, under which “a reverse payment settlement is 

immune from antitrust attack so long as its anticompetitive 

effects fall within the scope of the exclusionary potential of 

the patent,” Actavis, 133 S. Ct. at 2230 (citation omitted). We 

reasoned that the scope-of-the-patent test “is contrary to the 

policies underlying the Hatch-Waxman Act and a long line of 

Supreme Court precedent on patent litigation and 

 

15 The Supreme Court later vacated K-Dur and remanded 

for reconsideration in light of Actavis, see Merck & Co. v. La. 

Wholesale Drug Co., 133 S. Ct. 2849 (2013); Upsher-Smith 

Labs., Inc. v. La. Wholesale Drug Co., 133 S. Ct. 2849 

(2013). K-Dur was inconsistent with Actavis in that we had 

directed application of “quick look rule of reason analysis,” 

K-Dur, 686 F.3d at 218, rather than the traditional, fullfledged rule of reason standard that the Supreme Court 

subsequently decided is proper for reverse payment 

settlement agreements, see Actavis, 133 S. Ct. at 2237-38.
20

competition.” K-Dur, 686 F.3d at 214. Patents, we noted, are 

simply legal conclusions of the Patent Office. They should 

not be irrebuttably presumed valid, we said, especially given 

“the public interest support[ing] judicial testing and 

elimination of weak patents,” id. at 215-16, and “[t]he line 

that Congress drew [in Hatch-Waxman specifically] between 

the[] competing objectives” of promoting innovation and 

advancing the public interest, id. at 217. For these reasons, we 

held that rule of reason scrutiny is proper for reverse payment 

settlements. Id. at 218.16

The District Court here focused on our limitation of KDur to the pharmaceutical context, see id. at 216-18, and 

statements approving “settlements based on a negotiated entry 

date for marketing of the generic drug,” id. at 217-18, to 

restrict K-Dur’s reach to “settlements when a generic 

manufacturer is paid off with money, which is not the case 

here,” In re Lamictal Direct Purchaser Antitrust Litig., No. 

12-0995, 2012 WL 6725580, at *6 (D.N.J. Dec. 6, 2012). The 

court observed that Teva surely “received consideration,” or 

otherwise would have had “no incentive to settle,” but it 

viewed the parties’ settlement as “based on negotiated entry 

dates” rather than money. Id. Concluding the settlement was 

“not subject to antitrust scrutiny” under K-Dur, id., and that, 

“from a policy perspective, this settlement did introduce 

generic products onto the market sooner than what would 

have occurred had GSK’s patent not been challenged,” id. at 

*7, the court granted the defendants’ motion to dismiss for 

failure to state a claim. 

 

16 See supra note 15. 
21

Plaintiffs appealed and we stayed proceedings pending 

the Supreme Court’s decision in Actavis. After the Court’s 

decision, we remanded for further consideration in light of 

Actavis. In January 2014, the District Court “affirm[ed] its 

order of dismissal.” In re Lamictal Direct Purchaser Antitrust 

Litig., 18 F. Supp. 3d 560, 561 (D.N.J. 2014). Although 

conceding that “there is some very broad language in the 

[Actavis] opinion regarding patent settlements of all kinds,” 

id. at 566, the court read Actavis, as it had K-Dur before, as 

requiring antitrust scrutiny only of reverse payment patent 

settlements that “involve an exchange of money” rather than 

some other type of valuable consideration, id. at 568. In the 

alternative, the court stated, it “considered the settlement 

under the ‘five considerations’” of Actavis’s rule of reason 

and concluded that the settlement “would survive.” Id. at 570.

III.17

Plaintiffs contend that under Actavis antitrust scrutiny 

is not limited to reverse payments of cash. They assert the 

antitrust laws may be violated when a brand-name drug 

manufacturer induces a would-be generic competitor to delay 

market entry by agreeing not to launch an authorized generic 

to compete with the generic. Further, they argue, the District 

Court usurped the jury’s role in purporting to conduct a rule 

of reason analysis by applying the five considerations the 

 

17 The District Court had jurisdiction under section 4(a) of 

the Clayton Act, 15 U.S.C. § 15(a), and 28 U.S.C. §§ 1331 

and 1337. We have jurisdiction under 28 U.S.C. § 1291. We 

exercise plenary review over a district court’s ruling on a 

Federal Rule of Civil Procedure 12(b)(6) motion to dismiss. 

E.g., Byers v. Intuit, Inc., 600 F.3d 286, 291 (3d Cir. 2010). 
22

Actavis Court discussed to justify, not redefine, use of the 

already well-established rule of reason analysis. We will 

vacate and remand. 

A.

As noted, in Actavis, the Supreme Court rejected the 

“scope of the patent” test, a categorical rule that reverse 

payment patent settlements in the Hatch-Waxman context 

were immune from antitrust scrutiny so long as the asserted 

anticompetitive effects fell within the scope of the patent. The 

Court held that “reverse payment settlements . . . can 

sometimes violate the antitrust laws,” Actavis, 133 S. Ct. at 

2227, because “[a]n unexplained large reverse payment itself 

would normally suggest that the patentee has serious doubts

about the patent’s survival,” thereby “suggest[ing] that the 

payment’s objective is 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. 

Consequently, the Court held, plaintiffs should be able to 

prove “[t]he existence and degree of any anticompetitive 

consequence” of such an agreement under the traditional ruleof-reason test. Id. at 2237.

Justice Breyer framed the issue of reverse payments 

then before the Court as follows:

Company A sues Company B for patent 

infringement. The two companies settle under 

terms that require (1) Company B, the claimed 

infringer, not to produce the patented product 

until the patent’s term expires, and (2) 

Company A, the patentee, to pay B many 
23

millions of dollars. Because the settlement 

requires the patentee to pay the alleged 

infringer, rather than the other way around, this 

kind of settlement agreement is often called a 

“reverse payment” settlement agreement. And 

the basic question here is whether such an 

agreement can sometimes unreasonably 

diminish competition in violation of the 

antitrust laws. See, e.g., 15 U.S.C. § 1 (Sherman 

Act prohibition of “restraint[s] of trade or 

commerce”). Cf. Palmer v. BRG of Ga., Inc.,

498 U.S. 46 (1990) (per curiam) (invalidating 

agreement not to compete).

Actavis, 133 S. Ct. at 2227. 

The Court of Appeals for the Eleventh Circuit had 

applied its scope-of-the-patent test to the following facts. See

id. at 2227; FTC v. Watson Pharm., Inc., 677 F.3d 1298 (11th 

Cir. 2012), rev’d sub nom. Actavis, 133 S. Ct. 2223. Solvay 

Pharmaceuticals developed a brand-name drug called 

AndroGel in 1999 and obtained a relevant patent in 2003. 

Later in 2003, three would-be generic AndroGel 

manufacturers, Actavis first (soon followed by Paddock 

Laboratories and Par Pharmaceutical), filed ANDAs with 

paragraph IV certifications. Solvay sued. Thirty months into 

the litigation, the FDA approved Actavis’s first-filed ANDA. 

Actavis, 133 S. Ct. at 2229.

The parties settled in 2006. Under the terms of the 

settlement, 
24

Actavis agreed that it would not bring its 

generic to market until August 31, 2015, 65 

months before Solvay’s patent expired (unless 

someone else marketed a generic sooner). 

Actavis also agreed to promote AndroGel to 

urologists. The other generic manufacturers 

made roughly similar promises. And Solvay 

agreed to pay millions of dollars to each 

generic—$12 million in total to Paddock; $60 

million in total to Par; and an estimated $19–

$30 million annually, for nine years, to Actavis. 

The companies described these payments as 

compensation for other services the generics 

promised to perform, but the FTC contends the 

other services had little value. 

Id. (citations omitted). 

The FTC sued the settling manufacturers for violating 

the antitrust laws by agreeing to share Solvay’s monopoly 

profits. Id. at 2229-30. The FTC contended Solvay’s reverse 

payments to the generic manufacturers were compensation for 

the generics’ agreements not to compete with AndroGel. Id.

at 2229. The Court of Appeals for the Eleventh Circuit 

disagreed, and affirmed the dismissal of the FTC’s complaint, 

on the ground “that, absent sham litigation or fraud in 

obtaining the patent, a reverse payment settlement is immune 

from antitrust attack so long as its anticompetitive effects fall 

within the scope of the exclusionary potential of the patent.” 

Watson Pharm., 677 F.3d at 1312. In its view, “patent 

holder[s] had a lawful right to exclude others from the 

market.” Id. at 1307 (internal quotation marks omitted). Even 

though a patent might be found invalid if litigated, the court 
25

thought “the FTC’s approach would put that burden back on 

the parties and the court, undo much of the benefit of settling 

patent litigation, and discourage settlements,” in derogation of 

the important public policy interests served by settlement. Id.

at 1313-14.

The Supreme Court disagreed. It began with the 

premise that an asserted patent “may or may not be valid, and 

may or may not be infringed.” Actavis, 133 S. Ct. at 2231. 

Although a valid patent gives its holder the right to 

“‘exclude[] all . . . from the use of the protected process or 

product’” and charge prices of its choosing, including 

supracompetitive prices, “an invalidated patent carries with it 

no such right. And even a valid patent confers no right to 

exclude products or processes that do not actually infringe.” 

Id. (emphasis in original) (quoting United States v. Line 

Material Co., 333 U.S. 287, 308 (1948)). And from the time 

of their paragraph IV certification, the generics in Actavis had 

challenged both the validity and the scope of the AndroGel 

patent. Id. The Court observed that, as alleged by the FTC, 

Solvay had “agreed to pay the [generics] many millions of 

dollars to stay out of its market, even though the [generics] 

did not have any claim that [Solvay] was liable to them for 

damages.” Id. The Court was concerned that this “unusual” 

“form of settlement” could “have significant adverse effects 

on competition” and thought, accordingly, “that 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.” Id.

The Court cited several of its earlier cases for this 

proposition that courts must balance “the lawful restraint on 

trade of the patent monopoly and the illegal restraint 
26

prohibited broadly by the Sherman Act.” Id. (quoting Line 

Material, 333 U.S. at 310); see also United States v. U.S. 

Gypsum Co., 333 U.S. 364, 390-91 (1948). The antitrust 

question, it reasoned, must be answered “by considering 

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.” Actavis, 133 S. Ct. at 

2231. Only then can a court conclude “[w]hether a particular 

restraint lies ‘beyond the limits of the patent monopoly.’” Id.

at 2231-32 (quoting id. at 2241-42 (Roberts, C.J., 

dissenting)). By contrast, Chief Justice Roberts, joined in 

dissent by Justices Scalia and Thomas, would have held that 

“the scope of the patent—i.e., the rights conferred by the 

patent—forms the zone within which the patent holder may 

operate without facing antitrust liability.” Id. at 2238 

(Roberts, C.J., dissenting). In the dissenters’ view, “a patent 

holder acting within the scope of its patent does not engage in 

any unlawful anticompetitive behavior; it is simply exercising 

the monopoly rights granted to it by the Government.” Id. at 

2240. And, they maintained, the patent’s scope “should be 

determined by reference to patent law.” Id. (emphasis in 

original). 

As noted, the Court explained that its “precedents 

make clear that patent-related settlement agreements can 

sometimes violate the antitrust laws.” Id. at 2232 (majority 

opinion) (citing United States v. Singer Mfg. Co., 374 U.S. 

174 (1963); Line Material, 333 U.S. at 310-11; United States 

v. New Wrinkle, Inc., 342 U.S. 371, 378-80 (1952)). The 

Court viewed these prior cases as “seek[ing] to accommodate 

patent and antitrust policies, finding challenged terms and 

conditions unlawful unless patent law policy offsets the 
27

antitrust law policy strongly favoring competition,” 

notwithstanding the possible validity or infringement of the 

patent in question. Id. at 2233; see id. at 2244 (Roberts, C.J., 

dissenting) (“The majority seems to think that even if the 

patent is valid, a patent holder violates the antitrust laws 

merely because the settlement took away some chance that 

his patent would be declared invalid by a court.” (emphasis in 

original)). Rejecting the dissent’s view “that a patent holder 

may simply ‘pa[y] a competitor to respect its patent’ and quit 

its patent invalidity or noninfringement claim without any 

antitrust scrutiny whatever,” id. at 2233 (majority opinion) 

(alteration in original) (quoting id. at 2239 (Roberts, C.J., 

dissenting)), the Court reasoned that “[t]he dissent does not 

identify any patent statute that it understands to grant such a 

right to a patentee, whether expressly or by fair implication,” 

id. Such a right, the Court thought, “would be difficult to 

reconcile . . . 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)).18

 

18 Unlike the majority, the dissenters read the Court’s 

precedents to stand for the proposition that a patentee’s 

actions are subject to antitrust scrutiny only when they “go 

beyond the monopoly powers conferred by the patent,” with 

just two exceptions—settlement of sham litigation and 

litigation involving patents obtained by fraud on the Patent 

and Trademark Office. Actavis, 133 S. Ct. at 2239 (Roberts, 

C.J., dissenting); see also id. at 2241-42. No case cited by the 

majority, they said, subjected a patent settlement “to antitrust 

scrutiny merely because the validity of the patent was 

uncertain,” and no reference to “a ‘general procompetitive 
28

The Court further explained that its holding should not 

be read to subject to antitrust scrutiny “commonplace forms” 

of settlement, such as tender by an infringer of less than the 

patentee’s full demand. See id. But reverse payments, it said, 

are not such “familiar settlement forms.” Id. In a reverse 

payment settlement, the patentee “pays money . . . purely so 

[the alleged infringer] will give up the patent fight.” Id. These 

payments are said to flow in “reverse” because “a party with 

no claim for damages (something that is usually true of a 

paragraph IV litigation defendant) walks away with money 

simply so it will stay away from the patentee’s market. That,” 

the Court thought, “is something quite different,” and 

something that falls outside accepted “traditional examples” 

of settlement. Id.

Notwithstanding the potential concern “that antitrust 

scrutiny of a reverse payment agreement would require the 

parties to litigate the validity of the patent in order to 

demonstrate what would have happened to competition in the 

absence of the settlement,” the Court identified “five sets of 

considerations” militating in favor of permitting antitrust 

scrutiny. Id. at 2234. First, the Court saw in reverse payments 

the “potential for genuine adverse effects on competition.” Id.

(quoting FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 460-61 

(1986)). The inference may be drawn from a reverse payment 

that the patent holder is paying the alleged infringer to defend 

 

thrust’” of the Hatch-Waxman Act should be interpreted “to 

unsettle the established relationship between patent and 

antitrust law,” especially when “Congress has repeatedly 

declined to enact legislation addressing the issue.” Id. at 2242 

(quoting id. at 2234 (majority opinion)).
29

“a right it already claims but would lose if the patent litigation 

were to continue and the patent were held invalid or not 

infringed by the generic product.” Id. Even though other 

settlement terms might allow a generic challenger to enter the 

market prior to patent expiration, and thus permit some 

competition benefiting consumers, a reverse payment 

inducing delay—i.e., a “payment in return for staying out of 

the market—simply keeps prices at patentee-set 

[supracompetitive] levels . . . while dividing that return 

between the challenged patentee and the patent challenger.” 

Id. at 2234-35. 

Second, the Court thought “these anticompetitive 

consequences will at least sometimes prove unjustified.” Id.

at 2235-36. Although a payment may be justified if, for 

example, it approximates litigation expenses saved by the 

settlement or is true “compensation for other services that the 

generic has promised to perform,” it may not be justified 

when used “to prevent the risk of competition” by eliminating 

“the risk of patent invalidation or a finding of 

noninfringement.” Id. at 2236; see also, e.g., id. (noting that 

the antitrust harm occurs when “the payment’s objective is to 

maintain supracompetitive prices to be shared among the 

patentee and the challenger rather than face what might have 

been a competitive market—the very anticompetitive 

consequence that underlies the claim of antitrust 

unlawfulness”). At the same time, the Court did not rule out 

other justifications. 

Third, the Court reasoned, in reverse payment 

situations “the patentee likely possesses the power to bring” 

about this anticompetitive harm. Id. Not only does a patent 

protect such market power, but the size of a reverse payment 
30

may serve as a proxy for this power because a firm without 

such power (and the supracompetitive profits that power 

enables) is unlikely to buy off potential competitors. Id.

Fourth, “the size of the unexplained reverse payment 

can provide a workable surrogate for a patent’s weakness, all 

without forcing a court to conduct a detailed exploration of 

the validity of the patent itself.” Id. at 2236-37. Instead, the 

anticompetitive harm from such a payment appears not to be 

that the patentee is reaping supracompetitive monopoly 

profits from a decidedly invalid or noninfringed patent, but 

rather that there is a risk that the patent-enabled monopoly is 

unwarranted, and foreclosing such a challenge harms 

consumers. See id. at 2236 (“[T]he payment (if otherwise 

unexplained) likely seeks to prevent the risk of competition. 

And, as we have said, that consequence constitutes the 

relevant anticompetitive harm.”).19

Fifth, parties may still find other ways to settle, such as 

“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.” Id. at 

2237. The Court emphasized, however, that “[i]f the basic 

reason [for the reverse payment] is a desire to maintain and to 

share patent-generated monopoly profits, then, in the absence 

of some other justification, the antitrust laws are likely to 

forbid the arrangement.” Id.

 

19 See also, e.g., Actavis, 133 S. Ct. at 2244 (Roberts, C.J., 

dissenting) (“The majority seems to think that even if the 

patent is valid, a patent holder violates the antitrust laws 

merely because the settlement took away some chance that 

his patent would be declared invalid by a court.” (emphasis in 

original)). 
31

The Court concluded that, because of the fact-specific 

nature and the complexity of reverse payment agreements, 

courts should apply the traditional rule-of-reason analysis. 

See id. at 2237-38.

B.

We do not believe Actavis’s holding can be limited to 

reverse payments of cash. For the following reasons, we think 

that a no-AG agreement, when it represents an unexplained 

large transfer of value from the patent holder to the alleged 

infringer, may be subject to antitrust scrutiny under the rule of 

reason. We find the allegations here sufficient to state such a 

claim under the Sherman Act.20

1.

In the Actavis Court’s view, reverse payments are 

problematic because of their potential to negatively impact 

consumer welfare by preventing the risk of competition, 

which arises from expected litigation outcomes. See Actavis, 

133 S. Ct. at 2236. The Court’s reasoning was not that reverse 

payments per se violate the antitrust laws, or are per se 

anticompetitive. To the contrary, the Court declined to 

“abandon[] . . . the ‘rule of reason’ in favor of presumptive 

rules (or a ‘quick-look’ approach),” which are “appropriate 

only where an observer with even a rudimentary 

understanding of economics could conclude that the 

arrangements in question would have an anticompetitive 

effect on customers and markets.” Id. at 2237 (internal 

quotation marks omitted). Instead, the Court focused on 

 

20 See supra note 3; infra note 35. 
32

whether a reverse payment could have an anticompetitive 

effect or, alternatively, whether it was reasonable 

compensation for litigation costs or the value of services. In 

other words, the Court reasoned that “even a small risk of 

invalidity” may not justify a “large payment” (presumably 

enabled by “patent-generated monopoly profits”) that “likely 

seeks to prevent the risk of competition.” Id. at 2236. And, 

the Court reiterated, it is the prevention of that risk of 

competition—eliminating “the risk of patent invalidation or a 

finding of noninfringement” by “paying the challenger to stay 

out” of the market (for longer than the patent’s strength 

would otherwise allow)—that “constitutes the relevant 

anticompetitive harm,” which must then be analyzed under 

the rule of reason. Id. at 2236-37. 

It seems to us that no-AG agreements are likely to 

present the same types of problems as reverse payments of 

cash. The no-AG agreement here may be of great monetary 

value to Teva as the first-filing generic. In Actavis, the 

Supreme Court recognized generally that the 180-day 

exclusivity period is “possibly ‘worth several hundred million 

dollars,’” and may be where the bulk of the first-filer’s profits 

lie. Id. at 2229 (quoting C. Scott Hemphill, Paying for Delay: 

Pharmaceutical Patent Settlement as a Regulatory Design 

Problem, 81 N.Y.U. L. Rev. 1553, 1579 (2006)).21 There are 

 

21 In addition, a comprehensive FTC study suggests that 

having to compete with an authorized generic will likely both 

cut the generic’s sales and force down its price: “the presence 

of authorized generic competition reduces the first-filer 

generic’s revenues by 40 to 52 percent, on average.” FTC, 

Authorized Generic Drugs: Short-Term Effects and LongTerm Impact iii (2011), available at
33

also plausible indicia that this pattern held true here: The 

Amici States point out that “[p]ublic records show that 

generic sales of Lamictal in 2008 were some 671 million 

dollars,” so the no-AG agreement “was clearly worth millions 

of dollars, if not hundreds of millions of dollars[,] to the 

generic.” Amici States’ Br. 16. And the FTC suggests, using 

sales of the drug Paxil as a yardstick, that GSK’s no-AG 

agreement would have been worth hundreds of millions of 

dollars to Teva. Appellants’ Br. 24.22

 

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

see FTC Amicus Br. 8 (“Prices fall further when additional 

generic competitors enter . . . .” (citing FTC, Pay-for-Delay: 

How Drug Company Pay-Offs Cost Consumers Billions 8 

(2010), available at

http://www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf); 

FTC Amicus Br. 12 (“[G]eneric wholesale prices average 70 

percent of the pre-entry brand-name drug price when the firstfiler faces an AG, compared to 80 percent of the brand price 

when it does not.” (citing FTC, Authorized Generic Drugs, 

supra, at iii)). 

22 “The U.S. sales of Paxil were roughly equivalent to 

those of Lamictal in the year before each product faced 

generic competition ($2.3 billion and $2.2 billion, 

respectively).” Appellants’ Br. 24 (quoting FTC Br. as

Amicus Curiae at 8, Lamictal, 18 F. Supp. 3d. 560 (ECF No. 

89-3)). The magnitude of these figures is proportionate to the 

estimated $2.6 billion average cost of developing a new 

brand-name drug. See Tufts Ctr. for the Study of Drug Dev., 

Briefing: Cost of Developing a New Drug (Nov. 18, 2014), 

available at

http://csdd.tufts.edu/files/uploads/Tufts_CSDD_briefing_on_

RD_cost_study_-_Nov_18,_2014..pdf. 
34

At the same time, a brand’s commitment not to 

produce an authorized generic means that it must give up the 

valuable right to capture profits in the new two-tiered market. 

The no-AG agreement transfers the profits the patentee would 

have made from its authorized generic to the settling 

generic—plus potentially more, in the form of higher prices, 

because there will now be a generic monopoly instead of a 

generic duopoly. Thus, “the source of the benefit to the 

claimed infringer is something costly to the patentee.” Aaron 

Edlin et al., Activating Actavis, Antitrust, Fall 2013, at 16, 22 

n.22. Absent a no-AG promise, launching an authorized 

generic would seem to be economically rational for the brand.

For this reason, the fact that the brand promises not to launch 

an authorized generic (thereby giving up considerable value 

to the settling generic) makes the settlement something more 

than just an agreed-upon early entry: it “may instead provide 

strong evidence that the patentee seeks to induce the generic 

challenger to abandon its claim with a share of its monopoly 

profits that would otherwise be lost in the competitive 

market.” Actavis, 133 S. Ct. at 2235. 

The anticompetitive consequences of this pay-fordelay may be as harmful as those resulting from reverse 

payments of cash. If the brand uses a no-AG agreement to 

induce the generic to abandon the patent fight, the chance of 

dissolving a questionable patent vanishes (and along with it, 

the prospects of a more competitive market). As with a 

reverse payment of cash, a brand agreeing not to produce an 

authorized generic may thereby have “avoid[ed] the risk of 

patent invalidation or a finding of noninfringement.” Id. at 

2236. In addition, when the parties’ settlement includes a noAG agreement, the generic also presumably agrees to an early 
35

entry date that is later than it would have otherwise 

accepted.23 And during this time, the brand’s monopoly 

remains in force. Once the generic enters, moreover, it faces

no competition with other generics at all. 

Antitrust law is designed to protect consumers from 

arrangements that prevent competition in the marketplace. 

See, e.g., Actavis, 133 S. Ct. at 2234-35; id. at 2238 (Roberts, 

C.J., dissenting); accord XII Areeda & Hovenkamp, supra, 

¶ 2046c (2014 Supp.). The District Court here held that “the 

Supreme Court considered a reverse payment to involve an 

exchange of money” because “when the Supreme Court said 

‘payment’ it meant a payment of money.” Lamictal, 18 F. 

Supp. 3d at 568. But, we think, a no-AG agreement could 

likewise “prevent the risk of competition.” Actavis, 133 S. Ct. 

at 2236; cf. XII Areeda & Hovenkamp, supra, ¶ 2046c1 (2014 

Supp.) (explaining that under a “pay-for-delay settlement . . . 

consumer welfare remains the same as it would be under 

continued monopoly production by a single firm”); FTC 

Amicus Br. 22 (“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.”). We do not 

 

23 When parties compromise on an early-entry date 

alone—rather than an early-entry date plus valuable 

consideration—it is possible that they may compromise on an 

early-entry date reflecting their assessment of the strength of 

the patent. The concern with combining an early-entry date 

with the valuable consideration of a no-AG agreement is that 

the generic manufacturer may be willing to accept a later 

early-entry date without any corresponding benefit to 

consumers. 
36

believe the Court intended to draw such a formal line.24 Nor 

did the Actavis Court limit its reasoning or holding to cash 

payments only.25

2.

Defendants contend that no-AG agreements are 

distinguishable from reverse payments because they are in 

essence “exclusive licenses” and patent law expressly 

 

24 Cf., e.g., Cont’l T.V., Inc. v. GTE Sylvania Inc., 433 

U.S. 36, 58-59 (1977) (“[D]eparture from the rule-of-reason 

standard must be based upon demonstrable economic effect 

rather than . . . upon formalistic line drawing.”); 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.” (citing Eastman 

Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 466-67 

(1992))); Michael A. Carrier, Payment After Actavis, 100 

Iowa L. Rev. 7, 41-44 (2014). 

25 The dissent recognized the majority’s reasoning could 

reach noncash transactions. See Actavis, 133 S. Ct. at 2239 

(Roberts, C.J., dissenting) (“As in any settlement, Solvay 

gave its competitors something of value (money) and, in 

exchange, its competitors gave it something of value 

(dropping their legal claims).”); id. at 2245 (“[The majority’s] 

logic . . . cannot possibly be limited to reverse-payment 

agreements . . . . The Government’s brief acknowledges as 

much, suggesting that if antitrust scrutiny is invited for such 

cash payments, it may also be required for ‘other 

consideration’ and ‘alternative arrangements.’”). 
37

contemplates exclusive licenses.26 They argue the Actavis

Court rejected the dissent’s arguments in part because the 

dissent could “not identify any patent statute that it 

understands to grant such a right to a patentee, whether 

expressly or by fair implication.” Actavis, 133 S. Ct. at 2233; 

see GSK Br. 22-23, 34; Teva Br. 22-26. They suggest that if 

“the patent statute specifically gives a right to restrain 

competition in the manner challenged,” Actavis, 133 S. Ct. at 

2231 (internal quotation marks omitted), such conduct is 

immune from antitrust scrutiny. See GSK Br. 22-23; Teva Br. 

22-26, 34. In short, defendants argue GSK’s concession not to 

produce an authorized generic during Teva’s 180-day 

exclusivity period is an “exclusive license” exempt from 

antitrust scrutiny. 

But the “right” defendants seek is not in fact a 

patentee’s right to grant licenses, exclusive or otherwise.27

 

26 See 35 U.S.C. § 261 (“The . . . patentee, or his assigns 

or legal representatives may in like manner grant and convey 

an exclusive right under his application for patent, or patents, 

to the whole or any specified part of the United States.”). 

27 We do not believe the no-AG agreement was in fact an 

“exclusive” license. “Ordinarily, to say that a licensee’s right 

is exclusive is to mean that no one other than that licensee, 

not even the licensor/patentee, may practice the patent.” III 

Areeda & Hovenkamp, supra, ¶ 707a (3d ed. 2008). Here, of 

course, the no-AG agreement permitted both the patentee 

(GSK) and the challenger (Teva) to make bioequivalent 

drugs. Because both GSK and Teva could practice the patent, 

Teva’s license was therefore not exclusive, but rather 

imposed a restriction on the patentee that prevented a certain 

form of competition (on bioequivalent drugs labeled 
38

Instead, it is a right to use valuable licensing in such a way as 

to induce a patent challenger’s delay. The Actavis Court 

rejected the latter. The thrust of the Court’s reasoning is not 

that it is problematic that money is used to effect an end to the 

patent challenge, but rather that the patentee leverages some 

part of its patent power (in Actavis, its supracompetitive 

profits) to cause anticompetitive harm—namely, elimination 

of the risk of competition. There, the patentee gave the 

challenger a license to enter 65 months before patent 

expiration, plus a reverse payment of “millions of dollars.” 

Actavis, 133 S. Ct. at 2229. This reverse payment was not 

immunized, of course, simply because of that early-entry 

 

“generics”). And, as we have said before, “Where the license 

restriction results primarily in benefits for the licensees rather 

than the patentee, the anticompetitive restriction cannot be 

justified as a subsidy for the patentee’s inventive activity.” 

Mannington Mills, Inc. v. Congoleum Indus., Inc., 610 F.2d 

1059, 1071 (3d Cir. 1979). Indeed, “[p]atents give no 

protection from the prohibitions of the Sherman Act . . . when 

the licenses are used, as here, in the scheme to restrain.” New 

Wrinkle, 342 U.S. at 378; see also, e.g., Moraine Prods. v. 

ICI Am., Inc., 538 F.2d 134, 145 (7th Cir. 1976) (“Where a 

patent license is used to protect the licensee in addition to the 

patentee or is used to allow the licensees to divide a market 

among themselves, thus enabling them jointly to regiment an 

industry under the guise of a patent license, there is good 

reason to declare such a restrictive scheme illegal.”). The 

Actavis Court reaffirmed this broader principle. See, e.g., 133 

S. Ct. at 2231 (“[P]atent 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.”). 
39

“license.” Similarly, the fact that a patent holder may 

generally have the right to grant licenses, exclusive or 

otherwise, does not mean it also has the right to give a 

challenger a license along with a promise not to produce an 

authorized generic—i.e., a promise not to compete—in order 

to induce the challenger “to respect its patent and quit [the 

competitor’s] patent invalidity or noninfringement claim 

without any antitrust scrutiny.” Id. at 2233 (internal quotation 

marks omitted). In the Actavis Court’s view, the question is 

not one of patent law, but of antitrust law, the latter of which 

invalidates “the improper use of [a patent] monopoly.” Id. at 

2231 (alteration in original) (quoting Line Material, 333 U.S. 

at 310). But see id. at 2243 (Roberts, C.J., dissenting). And as 

we read the Court’s opinion, even exclusive licenses cannot 

avoid antitrust scrutiny where they are used in 

anticompetitive ways. See id. at 2227 (citing Palmer, 498 

U.S. 46); Palmer, 498 U.S. at 50 (holding an agreement not to 

compete based on an exclusive copyright license28 “unlawful 

on its face”). We make no statement about patent licensing 

more generally. But in this context we believe the fact that the 

Patent Act expressly authorizes licensing does not necessarily 

 

28 The Supreme Court opinion does not say what kind of 

“exclusive license” it is referring to, but the Eleventh 

Circuit’s opinion states, “BRG and HBJ disavow any intent to 

restrain trade and claim that their agreement is nothing more 

than an ordinary copyright royalty arrangement which courts 

have routinely sustained.” Palmer v. BRG of Ga., Inc., 874 

F.2d 1417, 1434 (11th Cir. 1989) (internal quotation marks 

omitted), rev’d, 498 U.S. 46.
40

mean it also authorizes reverse payments to prevent generic 

competition.29

We also disagree with defendants’ attempt to 

recharacterize Teva’s gain as resulting from its early entry 

alone. First, that characterization is inaccurate as a descriptive 

matter: What GSK gave Teva was a 180-day monopoly over 

the generic market. The first-filing generic cannot capture this 

value by early entry alone. It can only hope to obtain this 

value with the brand’s self-restraint, and here, without GSK’s 

no-AG commitment, GSK allegedly would have introduced 

an AG. Second, although we agree that the Actavis “Court 

 

29 The defendants’ arguments are much like those rejected 

by the majority in Actavis. The disagreement in the Court was 

fundamental. In the dissenters’ view, “a patent claim cannot 

possibly impose unlawful anticompetitive harm if the patent 

holder is acting within the scope of a valid patent and 

therefore permitted to do precisely what the antitrust suit 

claims is unlawful.” 133 S. Ct. at 2244 (Roberts, C.J., 

dissenting) (emphasis in original). The dissenters viewed the 

majority as “impos[ing] antitrust liability based on the 

parties’ subjective uncertainty about [a] legal conclusion,” 

namely, whether a patent is valid (and it is one or the other), 

because “[t]he majority seems to think that even if the patent 

is valid, a patent holder violates the antitrust laws merely 

because the settlement took away some chance that his patent 

would be declared invalid by a court.” Id. (emphasis in 

original). In fact, the dissenters perceived a slippery slope in 

that the majority’s “logic—that taking away any chance that a 

patent will be invalidated is itself an antitrust problem—

cannot possibly be limited to reverse-payment agreements, or 

those that are ‘large.’” Id. at 2245 (emphasis in original) 

(quoting id. at 2236 (majority opinion)). 
41

expressly identified early-entry licensing as a traditional form 

of settlement whose legality the opinion took pains not to 

disturb,” Teva Br. 25-26,30 a no-AG agreement is no more 

solely an early-entry licensing agreement than the settlement 

in Actavis itself, where entry was permitted 65 months before 

patent expiration. Actavis, 133 S. Ct. at 2229. 

Notwithstanding such “early entry,” the antitrust problem was 

that, as the Court inferred, entry might have been earlier, 

and/or the risk of competition not eliminated, had the reverse 

payment not been tendered. See Actavis, 133 S. Ct. at 2237 

(“They may, as in other industries, settle in other ways, 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.”); see also FTC Amicus Br. 21-22 (“[C]ompetitors 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 (while enlarging) their aggregate pool of monopoly 

profits.”). 

3.

Defendants present additional arguments as to why noAG agreements, as “exclusive licenses,” should not be 

subjected to antitrust scrutiny. Noting that public policy 

 

30 See Actavis, 133 S. Ct. at 2237; cf. K-Dur, 686 F.3d at 

217-18 (“[N]othing in the rule of reason test that we adopt 

here limits the ability of the parties to reach settlements based 

on a negotiated entry date for marketing of the generic 

drug . . . .”). 
42

favors settlements, they contend that subjecting such 

agreements to scrutiny will discourage settlements. GSK Br. 

37. Furthermore, they contend that “courts should not review 

pro-competitive conduct to determine whether an even more 

pro-competitive transaction exists.” GSK Br. 37 (citing 

Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, 

LLP, 540 U.S. 398, 415-16 (2004) (“The Sherman Act . . . 

does not give judges carte blanche to insist that a monopolist 

alter its way of doing business whenever some other approach 

might yield greater competition.” (citation omitted))); see

Teva Br. 32.

But Actavis addressed and rejected these arguments. 

First, the Court thought the possible discouragement of 

settlements was “outweigh[ed]” by other considerations and 

stated that “parties may well find ways to settle patent 

disputes without the use of reverse payments.” Actavis, 133 S. 

Ct. at 2237.31 But whatever the effect on settlements, we do 

 

31 The Court was unpersuaded by the dissenters’ 

arguments in this vein. The dissenters contended there was no 

empirical evidence that most reverse payment settlements 

occur in the Hatch-Waxman context, and that payments from 

patentee to alleged infringer “are a well-known feature of 

intellectual property litigation, and reflect an intuitive way to 

settle such disputes.” Actavis, 133 S. Ct. at 2242-43 (Roberts, 

C.J., dissenting). The Court, however, thought that 

“[a]pparently most if not all reverse payment settlement 

agreements arise in the context of pharmaceutical drug 

regulation, and specifically in the context of suits brought 

under statutory provisions allowing a generic drug 

manufacturer (seeking speedy marketing approval) to 

challenge the validity of a patent owned by an already-
43

not perceive how the noncash nature of no-AG agreements 

alters that balance. Second, we think Trinko inapposite. 

Actavis does not stand for the proposition that parties must 

reach the most procompetitive settlements possible. Instead, 

we read Actavis to hold that antitrust law may prohibit 

settlements that are anticompetitive because, without 

justification, they delay competition for longer than the 

patent’s strength would otherwise permit.32

 

approved brand-name drug owner.” Id. at 2227 (majority 

opinion). Similarly, although the dissenters contended that 

“[w]hile the alleged infringer may not be suing for the patent 

holder’s money, it is suing for the right to use and market the 

(intellectual) property, which is worth money,” id. at 2243 

(Roberts, C.J., dissenting) (emphasis in original), the Court 

thought reverse payments “unusual,” id. at 2231 (majority 

opinion). The dissenters also thought that the Court’s holding 

would discourage settlement even though “the right to settle 

generally accompanies the right to litigate in the first place.” 

Id. at 2243 (Roberts, C.J., dissenting). They postulated that 

“the majority’s decision may very well discourage generics 

from challenging pharmaceutical patents in the first place” by 

“[t]aking the prospect of settlements off the table—or limiting 

settlements to an earlier entry date for the generic, which may 

still be many years in the future.” Id. at 2247. 

32 In addition, Trinko dealt with different questions 

regarding unlawful monopolization and the refusal to deal—

set against the background of “the long recognized right of [a] 

trader or manufacturer engaged in an entirely private 

business, freely to exercise his own independent discretion as 

to parties with whom he will deal,” 540 U.S. at 408 

(alteration in original) (quoting United States v. Colgate & 

Co., 250 U.S. 300, 307 (1919))—and the role of the 
44

4.

For the reasons we have explained, we think this noAG agreement, because it may represent an unusual, 

unexplained transfer of value from the patent holder to the 

alleged infringer that cannot be adequately justified—whether 

as compensation for litigation expenses or services, or 

otherwise33—is subject to antitrust scrutiny under the rule of 

reason. But even if that is the rule, defendants contend, 

plaintiffs fail to state a claim under Bell Atlantic Corp. v. 

Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 

U.S. 662 (2009), because their “allegations are far too 

speculative to satisfy their burden of plausibly alleging that 

the settlement was anticompetitive.” See GSK Br. 44-45. In 

particular, defendants argue that “[p]laintiffs fail to plausibly 

allege that in this but-for world, the parties would have 

successfully negotiated an alternative, competitionmaximizing agreement,” Teva Br. 44; that continued 

litigation in favor of settlement “would have yielded a more 

competitive result,” Teva Br. 45; or that Teva would have 

launched their generics “at risk,” Teva Br. 46.

We believe plaintiffs’ allegations, and the plausible 

inferences that can be drawn from them, are sufficient to state 

a rule-of-reason claim under Twombly and Iqbal for violation 

of the Sherman Act on the ground that GSK sought to induce 

Teva to delay its entry into the lamotrigine tablet market by 

 

Telecommunications Act of 1996, which focuses on a 

different goal of eliminating certain monopolies, id. at 415. 

33 See Actavis, 133 S. Ct. at 2236 (“There may be other 

justifications.”). 
45

way of an unjustified no-AG agreement. As recited earlier, 

plaintiffs alleged that GSK agreed not to launch a competing 

authorized generic during Teva’s 180-day exclusivity period, 

which was to begin near the expiration of the ’017 patent; that 

such promises can be worth “many millions of dollars of 

additional revenue”; that “GSK had an incentive to launch its 

own authorized generic versions of tablets”; that Teva had a 

history of launching “at risk”; and that the ’017 patent was 

likely to be invalidated—as, in fact, its main claim had been. 

Because marketing an authorized generic was allegedly in 

GSK’s economic interest, its agreement not to launch an 

authorized generic was an inducement—valuable to both it 

and Teva—to ensure a longer period of supracompetitive 

monopoly profits based on a patent at risk of being found 

invalid or not infringed. (Indeed, Teva asserted in other 

litigation that the no-AG agreement “formed part of the 

inducement to Teva to relinquish the rights and defenses it 

was asserting against GSK in the Patent Litigation.” JA 76 

(alteration and emphases omitted).) And although plaintiffs 

concede that Teva entered the lamotrigine chewables market 

about 37 months early, see, e.g., GSK Br. 7, the chewables 

market, allegedly worth only $50 million annually, was 

orders of magnitude smaller than the alleged $2 billion tablet 

market the agreement is said to have protected. Accordingly, 

at the pleading stage plaintiffs have sufficiently alleged that 

any procompetitive aspects of the chewables arrangement 

were outweighed by the anticompetitive harm from the noAG agreement.34

 

34 It may also be (though we do not decide) that 

“procompetitive effects in one market cannot justify 

anticompetitive effects in a separate market” (i.e., the 

lamotrigine tablet market). Amicus Br. Nat’l Ass’n Chain 
46

Moreover, we do not read Actavis to require 

allegations that defendants could in fact have reached another, 

more competitive settlement. Actavis embraces the concept 

that a patent “may or may not be valid, and may or may not 

be infringed,” 133 S. Ct. at 2231, and holds that the 

anticompetitive harm is not certain consumer loss through 

higher prices, but rather the patentee’s “avoid[ance of] the 

risk of patent invalidation or a finding of noninfringement”—

that is, “prevent[ion of] the risk of competition,” id. at 2236, 

beyond what the patent’s strength would otherwise allow—

and, thus, consumer harm. In other words, under the 

substantive standard, the question is not whether the 

defendants have only possibly acted unlawfully, but see Teva 

Br. 43, but whether they have acted unlawfully by seeking to 

prevent competition. Plaintiffs have sufficiently pleaded as 

much.35

 

Drug Stores in Support of Appellants 27-28 (citing, inter alia, 

Paladin Assocs., Inc. v. Mont. Power Co., 328 F.3d 1145, 

1157 n.11 (9th Cir. 2003)); see Paladin Assocs., 328 F.3d at 

1157 n.11 (“It may be . . . that this procompetitive effect 

should not be considered in our rule of reason analysis, based 

on the theory that procompetitive effects in a separate market 

cannot justify anti-competitive effects in the market for 

pipeline transportation under analysis.”) (citing United States 

v. Topco Assocs., 405 U.S. 596, 610 (1972); see also Topco, 

405 U.S. at 610 (“[Competition] cannot be foreclosed with 

respect to one sector of the economy because certain private 

citizens or groups believe that such foreclosure might 

promote greater competition in a more important sector of the 

economy.”). 

35 We do not decide the question of antitrust injury in 

private actions such as this litigation, see generally, e.g., Ian 
47

C.

1.

In the alternative, the District Court stated that “[i]t 

finds that the settlement . . . would survive Actavis scrutiny 

and is reasonable.” 18 F. Supp. 3d at 570. This was error. As 

explained above, plaintiffs have sufficiently pleaded violation 

of the antitrust laws so as to overcome defendants’ motion to 

dismiss. If genuine issues of material fact remain after 

discovery, the rule-of-reason analysis is for the finder of fact, 

not the court as a matter of law.36

In addition, the District Court mistook the “five sets of 

considerations” that persuaded the Actavis Court “to conclude 

that the FTC should have been given the opportunity to prove 

 

Simmons et al., Viewing FTC v. Actavis Through the Lens of 

Clayton Act Section 4, Antitrust, Fall 2013, at 24; In re 

Niaspan Antitrust Litig., 42 F. Supp. 3d 735, 755-77 (E.D. Pa. 

2014), nor do we preclude the parties from raising the issue 

on remand. 

36 See, e.g., Arizona v. Maricopa Cnty. Med. Soc’y, 457 

U.S. 332, 343 (1982) (“[T]he rule of reason requires the 

factfinder to decide whether under all the circumstances of 

the case the restrictive practice imposes an unreasonable 

restraint on competition.”); In re Ins. Brokerage Antitrust 

Litig., 618 F.3d 300, 316 & n.12 (3d Cir. 2010) (discussing 

the fact-bound, burden-shifting standard and noting that “[i]n 

the event a genuinely disputed issue of fact exists regarding 

the reasonableness of the restraint, the determination is for the 

jury”). 
48

its antitrust claim” under the rule of reason, 133 S. Ct. at 

2234, as a redefinition of the “rule of reason” itself. But the 

general contours of the rule of reason are well-mapped. See 

generally, e.g., id. at 2236 (citing Ind. Fed’n of Dentists, 476 

U.S. at 459); Deutscher Tennis Bund v. ATP Tour, Inc., 610 

F.3d 820, 829-30 (3d Cir. 2010). We recognize the Actavis

Court “le[ft] to the lower courts the structuring of [this type 

of] rule-of-reason antitrust litigation,” 133 S. Ct. at 2238, and 

that there may be some uncertainty as to how, exactly, a 

“defendant may show in the antitrust proceeding that 

legitimate justifications are present, thereby explaining the 

presence of the challenged term and showing the lawfulness 

of that term under the rule of reason,” id. at 2236 (citing Ind. 

Fed’n of Dentists, 476 U.S. at 459). But the Court noted that 

justifications might include “litigation expenses saved 

through the settlement” or “compensation for other services 

that the generic has promised to perform.” Id. And although 

the Court left such details of how to apply the proper antitrust 

theories to “the basic question—that of the presence of 

significant unjustified anticompetitive consequences,” id. at 

2238—it suggested “the antitrust laws are likely to forbid” 

payment for delay (or, that is, to eliminate risk of patent 

invalidity or noninfringement), id. at 2237. 

Here, the District Court thought the no-AG agreement 

was “justified” because, although the settlement amount was 

likely greater than litigation costs, “the consideration which 

the parties exchanged in the settlement [wa]s reasonably 

related to the removal of the uncertainty created by the 

dispute.” Lamictal, 18 F. Supp. 3d at 570. That conclusion is 

in tension with Actavis in that, without proper justification, 

the brand cannot pay the generic simply to eliminate the risk 

of competition. Nor did the court properly conclude “that the 
49

potential for adverse effects on competition [wa]s minimal,” 

or that the settlement was reasonable, because “the duration 

of the No-AG Agreement was a relatively brief six months.” 

Id. The anticompetitive harm plaintiffs allege—consistent 

with Actavis—is that the promise of no authorized-generic 

competition during those six months induced Teva to quit its 

patent challenge. As discussed above, plaintiffs plausibly 

allege this no-AG promise was of considerable value and thus 

designed to protect GSK’s patents against the risk of 

invalidation or noninfringement, rather than reimburse 

litigation costs or compensate for services. Accordingly, the 

District Court should have permitted the litigation to proceed 

under the traditional rule-of-reason approach. 

2.

Under the traditional rule-of-reason analysis, the 

factfinder must 

weigh all of the circumstances of a case in 

deciding whether a restrictive practice should be 

prohibited as imposing an unreasonable 

restraint on competition. The plaintiff bears an 

initial burden under the rule of reason of 

showing that the alleged combination or 

agreement produced adverse, anti-competitive 

effects within the relevant product and 

geographic markets. The plaintiff may satisfy 

this burden by proving the existence of actual 

anticompetitive effects, such as reduction of 

output, increase in price, or deterioration in 

quality of goods or services. Such proof is often 

impossible to make, however, due to the 
50

difficulty of isolating the market effects of 

challenged conduct. Accordingly, courts 

typically allow proof of the defendant’s market 

power instead. Market power, the ability to 

raise prices above those that would prevail in a 

competitive market, is essentially a surrogate 

for detrimental effects. 

If a plaintiff meets his initial burden of 

adducing adequate evidence of market power or 

actual anti-competitive effects, the burden shifts 

to the defendant to show that the challenged 

conduct promotes a sufficiently pro-competitive 

objective. . . . To rebut, the plaintiff must 

demonstrate that the restraint is not reasonably 

necessary to achieve the stated objective. 

United States v. Brown Univ., 5 F.3d 658, 668-69 (3d Cir. 

1993) (alteration, citations, internal quotation marks, and 

footnotes omitted). 

The Actavis Court provided initial guidance on how to 

structure rule-of-reason litigation in the reverse payment 

context. The Court explained that such antitrust questions 

must be answered “by considering 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.” Actavis, 133 S. Ct. at 2231. 

First, to prove anticompetitive effects, the plaintiff 

must prove payment for delay, or, in other words, payment to 

prevent the risk of competition. See id. at 2235-36. “[T]he 

likelihood of a reverse payment bringing about 
51

anticompetitive effects 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.” 

Id. at 2237. 

Second, the burden then shifts to the defendant to 

show “that legitimate justifications are present, thereby 

explaining the presence of the challenged term and showing 

the lawfulness of that term under the rule of reason.” Id. at 

2235-36. 

The reverse payment, for example, may amount 

to no more than a rough approximation of the 

litigation expenses saved through the 

settlement. That payment may reflect 

compensation for other services that the generic 

has promised to perform—such as distributing 

the patented item or helping to develop a market 

for that item. There may be other justifications. 

Id. at 2236. The Court does not foreclose other justifications, 

and we need not decide today what those other justifications 

might be. 

Finally, the plaintiff will have the opportunity to rebut 

the defendant’s explanation.37

 

37 See generally, e.g., King Drug Co. of Florence v. 

Cephalon, Inc., --- F. Supp. 3d ----, ----, No. 06-1797, 2015 

WL 356913, at *7-16 (E.D. Pa. Jan. 28, 2015). 
52

On remand, we invite the District Court to proceed 

with the litigation under the traditional rule of reason, 

tailored, as necessary, to the circumstances of this case.38

IV.

For the foregoing reasons, we vacate the judgment of 

the District Court and remand for further proceedings 

consistent with this opinion. 

 

38 We note that the rule of reason allows the court, 

depending on the circumstances, to 

structure antitrust litigation so as to avoid, on 

the one hand, the use of antitrust theories too 

abbreviated to permit proper analysis, and, on 

the other, consideration of every possible fact or 

theory irrespective of the minimal light it may 

shed on the basic question—that of the presence 

of significant unjustified anticompetitive 

consequences. 

Actavis, 133 S. Ct. at 2238. In addition, nothing in this 

opinion precludes a defendant from prevailing on a motion to 

dismiss or motion for summary judgment if, for example, 

there is no dispute that, under the rule of reason, the 

procompetitive benefits of a reverse payment outweigh the 

payment’s alleged anticompetitive harm.