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SDNY Allows Product-Hopping and Pay-For-Delay Claims to Proceed
Practical Law Legal Update w-003-5857 (Approx. 4 pages)
SDNY Allows Product-Hopping and Pay-For-Delay Claims to Proceed
by Practical Law Antitrust
| Published on 23 Sep 2016 • USA (National/Federal) |
The US District Court for the Southern District of New York denied motions to dismiss claims by direct and indirect purchasers that Actavis PLC and its subsidiary Forest Laboratories, LLC violated federal and state antitrust laws by engaging in product hopping to force patients to switch versions of the Alzheimer's drug Namenda. The court also upheld reverse payment settlement agreement, or pay-for-delay, claims relating to Namenda.
On September 13, 2016, the US District Court for the Southern District of New York allowed product-hopping and pay-for-delay claims brought by direct and indirect purchasers of Namenda brand drugs to proceed (Sergeants Benevolent Assoc. v. Actavis PLC, No. 15-cv-6549 (S.D.N.Y. Sept. 13, 2016)).
Product Hopping Claims under Sherman Act Section 2
The plaintiffs alleged that the defendants, Actavis PLC (now known as Allergan) and its subsidiary Forest Laboratories, LLC engaged in product hopping, which involved forcing Alzheimer's drug Namenda IR patients to switch to a patent-protected version of the drug by:
- Withdrawing Namenda IR from the market before its patent expired and a generic version of Namenda IR became available.
- Replacing Namenda IR on the market with patent-protected, reformulated drug Namenda XR.
The litigation follows a lawsuit brought by the New York Attorney General that successfully obtained a preliminary injunction preventing Allergan from withdrawing Namenda IR from the market. The Second Circuit upheld the injunction (see Legal Update, Second Circuit Affirms Preliminary Injunction in Namenda Product Hopping Case).
The court denied motions to dismiss the direct and indirect purchasers' monopolization claims against Actavis and Forest. Relying extensively on the Second Circuit opinion in the New York Attorney General's case, the court found that:
- The plaintiffs plausibly alleged that they suffered damages before the injunction preventing withdrawal of Namenda IR took effect. The court found that patients could have switched from Namenda IR to Namenda XR as soon as Forest announced that it would withdraw Namenda IR from the market, even though the injunction later prevented it from actually doing so.
- The plaintiffs plausibly alleged standing because of allegations that they were forced to pay for treatment at brand-name prices for patients who switched to Namenda XR as soon as the withdrawal announcement was made.
Pay-for-Delay Claims Under Sherman Act Section 1
The court also upheld Section 1 claims alleging that Forest and other generic pharmaceutical companies engaged in illegal reverse payment settlement agreements to delay entry of generic Namenda IR into the market. The plaintiffs alleged that the reverse payments were made through agreements to license Forest's patent that were executed at the same time as the settlement of patent litigation between the parties. The licensing agreements included provisions:
- Requiring Forest to compensate the generic defendants for litigation costs.
- Allowing the generic firms to enter the market with Namenda IR before the patent expired.
The court held that:
- There is no general safe harbor in pay-for-delay cases for litigation cost payments under $7 million, which the defendants argued existed based on the FTC's settlement in FTC v. Cephalon.
- Discovery was needed to resolve whether the licensing agreements allowing early entry constituted reverse payments. The court noted that the additional competitive harm resulting from the Namenda product hopping strategy potentially distinguished the case from other decisions finding that early-entry-only settlements were procompetitive.
The court also held that it would resolve the plaintiffs' state-law claims after the federal claims were resolved.