On September 12, 2014, Judge Peter G. Sheridan of the US District Court for the District of New Jersey held in In re Lipitor Antitrust Litigation that the US Supreme Court’s ruling in FTC v. Actavis, Inc. applies to reverse payment settlements involving non-cash payments but that plaintiffs must plead facts that plausibly estimate the monetary value of the non-cash payments ( (D.N.J. Sept. 12, 2014)). Plaintiffs, a proposed class of direct purchasers of the cholesterol drug Lipitor, alleged that defendants Pfizer, Inc. and Ranbaxy, Inc. entered into a reverse payment settlement, also known as a pay-for-delay agreement, in which Ranbaxy agreed to delay introducing a generic version of Lipitor in exchange for a significant non-monetary payment from Pfizer. The judge dismissed the plaintiffs’ claims with prejudice for failure to plausibly allege facts that would allow a reliable estimate of the cash value of the reverse payment.

Under the challenged 2008 settlement agreement, Ranbaxy agreed not to sell generic Lipitor until November 2011 and to drop its challenges of Pfizer’s Lipitor patents. Pfizer agreed to:

Plaintiffs alleged that the $1 million Accupril settlement was a token amount that was far less than Pfizer’s actual damages and that the foreign marketing rights had significant value, together amounting to a large non-monetary reverse payment to Ranbaxy. Although not addressed in plaintiffs’ allegations, the 2008 settlement agreement also contained additional terms that resolved a patent infringement lawsuit relating to the drug Caduet and 23 other legal actions in foreign jurisdictions.

Addressing an issue on which trial courts have differed, Judge Sheridan held that Actavis applies to settlement agreements that involve non-cash reverse payments. The court noted that in a case where plaintiffs are alleging a non-cash reverse payment, they must provide sufficient facts to demonstrate a reliable value of that payment. In particular, the court faulted the plaintiffs for failing to plead sufficient facts to allow an estimate of:

For example, to be able to estimate the value of the damages that Pfizer allegedly gave up by accepting $1 million to settle the Accupril litigation, the court found that plaintiffs had to plead facts showing:

Without a reliable methodology and specific facts from which to estimate the value of the reverse payment and the parties’ saved litigation costs, the court found that it could not assess whether the settlement agreement was unreasonable under Actavis and the complaint did not meet Twombly’s pleading standards.

Judge Sheridan also noted that the plaintiffs’ complaint improperly relied only on certain sections of Pfizer and Ranbaxy’s settlement agreement and ignored the terms that related to settling the Caduet litigation and the foreign legal proceedings. The court found that the settlement agreement must be evaluated as a whole in order to determine whether it is reasonable.

Because the direct purchaser plaintiffs had already amended their complaint once after limited discovery, the court dismissed the complaint with prejudice. The decision does not apply to the pending complaints of three other groups of plaintiffs in the Lipitor proceeding, although the court noted that the decision may be relevant to them to the extent their complaints contain similar allegations.

This decision adds to the growing body of district court opinions that are putting Actavis into practice. Judge Sheridan’s decision notably differs from another District of New Jersey case holding that Actavis does not apply to non-cash reverse payments at all. Nonetheless, the Lipitor decision sets a very high bar for plaintiffs seeking to plausibly state a claim involving non-cash reverse payments. For more information on prior decisions concerning Actavis, see Legal Updates, Supreme Court Issues Decision in Pay-for-Delay Case FTC v. Actavis, District of New Jersey Holds that Actavis Applies Only to Monetary Reverse Payment Settlements, Federal Judge Holds that Actavis Is Not Limited to Cash Payment Settlements and Cash Only: Federal Judge Holds that Actavis is Limited to Monetary Settlement Payments.

For more information on reverse settlements see Practice Note, Reverse Payment Settlement Agreements.