(CN) - Non-cash settlement deals made by drugmaker Warner Chilcott to convince generic makers to drop their patent challenges are subject to antitrust scrutiny, the First Circuit ruled.
Warner Chilcott is the maker of the drug Loestrin 24 Fe, a birth control pill.
Two generic drugmakers, Watson Pharmaceuticals and Lupin Pharmaceuticals, notified Warner that they intend to introduce a generic version of Loestrin 24.
Warner subsequently sued each drugmaker for patent infringement, then entered into a settlement agreement favorable to the generic maker in exchange for a promise to delay their plans to market their version of Loestrin.
The settlement granted Watson favorable promotional deals with Warner, and Lupin received a number of favorable side deals plus attorneys' fees.
Corporate purchasers of Loestrin and health benefit plans filed class actions against Warner, claiming that the settlements violated antitrust laws because they involve a form of reverse payment, even if that payment is not in cash.
A federal judge found that nonmonetary payments do not qualify for antitrust protection, but the First Circuit reversed that ruling on Monday.
In FTC v. Actavis, "the Supreme Court recognized that a disguised above-market deal, in which a brand manufacturer effectively overpays a generic manufacturer for services rendered, may qualify as a reverse payment subject to antitrust scrutiny," U.S. Circuit Judge Juan Torruella said, writing for the three-judge panel.
While legal policy weighs in favor of upholding settlements, a large payment may have a significant anticompetitive effect, especially when the patent owner seeks to protect its market power and brand name.
"Antitrust scrutiny attaches not only to pure cash reverse payments, but to other forms of reverse payment that induce the generic to abandon a patent challenge, which unreasonably eliminates competition at the expense of consumers," Torruella said.
While it may be difficult to place a monetary value on non-monetary payments, plaintiffs have presented enough information to estimate the value of Warner's deals, at least to determine whether the settlement provisions are "large" and "unjustified," the panel found.
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