Three years ago, the Supreme Court held in Federal Trade Comm’n v. Actavis, Inc. that pay-for-delay settlement agreements may constitute antitrust violations under the rule of reason if their anticompetitive effects are unreasonable when viewed in light of the agreements’ size, scale in relation to future litigation costs, independence from other services that might justify payment, and lack of any other convincing justification.  133 S.Ct. 2223, 2237 (2013).

The First Circuit recently issued an appellate opinion in the first pharmaceutical-settlement antitrust action tried to a jury since the Supreme Court’s Actavis decision, in In Re: Nexium (Esomeprazole) Antitrust Litigation, 842 F.3d 34, 2016 U.S. App. LEXIS 20845 at *2 (1st Cir. 2016).  In the underlying ANDA litigation, Astrazeneca asserted claims of patent infringement against Ranbaxy based on its filing of an ANDA for generic Nexium.  The patents had expiration dates between May 27, 2014 and May 2018.  The parties settled their ANDA litigation on the following terms: (1) Ranbaxy was licensed to practice all patents beginning May 27, 2014; (2) AstraZeneca would not market an authorized generic during Ranbaxy’s 180-day first-filer exclusivity period (the “no-AG clause”); (3) Ranbaxy was designated a subcontractor and manufacturer of certain quantities of Nexium; (4) Ranbaxy was made AstraZeneca’s distributor of authorized generic versions of Prilosec and Plendil; and (5) AstraZeneca would pay Ranbaxy 20% of its profits on drugs sold under the distributor agreement.  Id. at 12-13.

The plaintiffs in the Nexium antitrust action included pharmaceutical retailers, wholesale drug distributors, individual consumers, and third-party payors. Id. at *18.

In response to special verdict questions, the jury found that the AstraZeneca-Ranbaxy settlement agreement “contained a large and unjustified payment” and had an “unreasonable anticompetitive market impact.” Id. at * 38.  But in response to question 4, the jury also found that plaintiffs had “failed to prove that AstraZeneca would have negotiated an entry date earlier than May 27, 2014,” but for the antitrust violation.  Id. at 39.  Hence, plaintiffs failed to prove any antitrust injury despite the existence of an antitrust violation.

On appeal, plaintiffs attacked question 4 of the special verdict, which asked “Had it not been for the unreasonably anticompetitive settlement, would AstraZeneca have agreed that Ranbaxy might launch a generic version of Nexium before May 27, 2014?” Id. at *58.  Plaintiffs argued that this question improperly “required a specific factual sequence of causation” and “erroneously posed a subjective test about the intent of the defendants.”  Id. at *59.

Although the court held that plaintiffs waived these appellate arguments by failing to object to the jury instructions at trial, it nevertheless agreed to address the issue of antitrust injury in response to the FTC’s amicus brief, asking the court to “straighten[] out the conflation of antitrust violation and antitrust injury that crept into the district court’s post-trial opinion.” Id. at *59.  The First Circuit explained that failure to prove antitrust injury was fatal to a private plaintiff’s antitrust claim.  While the FTC may directly enforce substantive antitrust laws, private plaintiffs must prove antitrust injury in order to recover damages.  Id. at 60.  According to the court, the special verdict showed that the jury found that “notwithstanding the existence of an antitrust violation, the plaintiffs failed to establish antitrust injury that entitled them to monetary relief.” Id. at 62.

It is fair to say that AstraZeneca and Ranbaxy dodged a bullet in this case because of Ranbaxy’s problems at the FDA (which ultimately resulted in Ranbaxy being precluded from selling a generic Nexium product before the May 24, 2017 entry date under the parties’ settlement agreement).  The court’s decision would likely have been different if Ranbaxy had obtained swift FDA approval of its ANDA.  But the Nexium decision instructs ANDA litigants that they should be cautious in drafting settlement agreements that include “no-AG clauses”, distribution agreements, and other reverse-payment terms with large cash values.  These terms will receive close scrutiny from the courts and may be found to be antitrust violations if the payments are “large and unjustified.”