Written by Jason Jardine and Jane Dai

On November 7, 2016, the U.S. Supreme Court declined to review an appeal from a Third Circuit decision finding that a settlement between GlaxoSmithKline (GSK) and Teva Pharmaceutical Industries Ltd. (Teva) involving the anticonvulsant drug Lamictal can raise antitrust scrutiny even in the absence of a cash payment between the parties.

Legal Background

In 2013, the U.S. Supreme Court issued the landmark decision U.S. Federal Trade Communication v. Actavis, a case of considerable importance to the pharmaceutical industry. The case involved the question of whether, and to what extent, “reverse payment” settlements violated federal antitrust laws. Before this decision, several appellate courts had been split on the issue of whether such reverse payment settlements were unlawful.

In a 5-3 split decision, the Supreme Court concluded that reverse-payment settlements can violate antitrust laws, but that each case must be considered individually under a rule-of-reason standard commonly applied in antitrust cases. FTC v. Actavis, 133 S. Ct. 2223, 2237 (2013).The Court left the issue of how to structure a proper rule-of-reason test to the lower courts. Id. at 2238.

The Procedural History of the Lamictal Anti-trust litigation

Lamictal is marketed by GSK for treating epilepsy and bipolar disorder. Several buyers challenged the Hatch-Waxman settlement between GSK and Teva, claiming that GSK paid Teva to delay launching a generic version of Lamictal until one day prior to the expiration date of GSK’s patents. Instead of structuring the deal as a typical reverse payment, GSK instead compensated Teva by agreeing not to launch its own authorized generic during Teva's 180-day exclusivity window.

The case was originally dismissed in the District Court of New Jersey, but the Third Circuit reversed in June 2015, finding that an agreement by the brand name company not to launch an “authorized generic” (“no-AG agreement”) during a generic company’s 180-day exclusivity period may be of great monetary value to the generic company. Therefore, a no-AG agreement could present the same type of problem as a reverse payment of cash, and could support an antitrust suit under Actavis. King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp. d/b/a GlaxoSmithKline, 791 F.3d 388, 409 (3d Cir. 2015).

GSK and Teva filed a petition for Supreme Court review in February, arguing that a no-AG agreement is merely a form of exclusive license expressly contemplated by the patent laws. The petition requested that the justices clear up “disagreement and confusion” about what kinds of settlements can be scrutinized under Actavis.

The Supreme Court asked the U.S. Solicitor General to provide the government position on the issue. In a brief filed in October, Acting Solicitor General Ian Gershengorn said the 3rd Circuit decision was correct because no-AG agreements share many features with settlements that involve reverse payments. “Accordingly, like a reverse payment of cash, a no-AG agreement can have ‘significant adverse effects on competition.’” The justices followed this advice and denied GSK/Teva’s petition for a second look.

As of now, no other circuit has addressed the issue whether a no-AG agreement raises antitrust concerns.