SAN FRANCISCO (CN) - Drugmakers Endo, Teikoku Seiyaku and Watson Pharmaceuticals couldn't convince a federal judge to dismiss antitrust claims by unions nationwide that a settlement of patent claims for the painkiller patch Lidoderm kept a generic version of the product off the market.
Unions and other groups from across the United States sued the drugmakers in various federal courts, claiming violations of the Sherman Antitrust Act as well as state antitrust and consumer laws and common-law unjust enrichment. The actions were consolidated into a multidistrict litigation case being heard by U.S. District Judge William Orrick in San Francisco.
The unions claim that when Endo and Teikoku Seiyaku agreed to drop patent infringement litigation against generic drugmaker Watson over the painkiller patch Lidoderm in 2012, they gave Watson $96 million in free, brand-name Lidoderm patches to sell. The companies also agreed to delay their own generic version of the patch for nearly eight months in exchange for a 25 percent royalty on the gross-profit sales from Watson's generic patch, an exclusivity deal worth an estimated $170 million.
The patch delivers an anesthetic that is used to treat the pain associated with shingles, formally known as post-herpetic neuralgia.
And although the Federal Drug Administration approved Watson's product in 2012, the company waited more than a year to start selling it - another facet of the companies' settlement agreement, the unions say.
The drugmakers moved to dismiss the consolidated action, arguing that in the case of the unions' Sherman Act claims their settlement terms are protected from scrutiny because they allowed Watson to enter the market earlier than it otherwise would have been able to. But the $96 million in brand-name patches given to Watson - and the agreement to honor Endo's and Teikoku Seiyaku's pricing structure - resulted in supracompetitive prices and hampered competition, Orrick said in a ruling issued Monday.
"Even though some terms that allow early-entry are procompetitive and not subject to antitrust scrutiny as a matter of law, as defendants argue, here plaintiffs plausibly allege that the provision of brand-name product was not procompetitive because it did not 'increase output, reduce price, or increase consumer choice,'" Orrick wrote, citing one of the complaints. "The settlement prohibited Watson from directly competing with Endo because Watson agreed to honor Endo's price-related contracts. Moreover, plaintiffs specifically and plausibly allege that Watson in fact sold the brand-name Lidoderm at the same supracompetitive prices as Endo. Plaintiffs also allege that the payment had an anticompetitive effect because Watson would have released its generic Lidoderm before Sept. 15, 2013 if Endo/Teikoku had not paid $96 million worth of brand product."
Using brand-name products as payment does not fall within the types of settlements the Supreme Court has declared in Federal Trade Commission v. Actavis are beneficial to consumers and therefore exempt from antitrust scrutiny, the judge added.
Additionally, the agreement to keep the companies' generic versions off the market hurt consumers and competition since the generic price drops each time a new entry hits the market, the ruling states.
"If Endo/Teikoku and Watson had concurrently entered the generic market, as they were legally allowed to do as of August 2012, then plaintiffs allege that but for the agreement, an authorized generic version of Lidoderm would have been available on the market simultaneously with the launch of Watson's generic, and consumers would have paid far less for generic Lidoderm," Orrick wrote.
He added: "On this motion to dismiss, plaintiffs have plausibly pled that the no-authorized-generic and provision of brand-name Lidoderm terms were not beneficial to consumers despite the fact that Watson was allowed to enter the market before patent expiry. Thus they are not akin to the early-entry settlements that Actavis held were not subject to antitrust scrutiny."
Orrick also rejected the drugmakers' argument that Actavis only forbids reverse-payment cash settlements and not - as in this case - the giving of brand-name Lidoderm patches.
"I agree that in order to determine if a term is a large and unjustified payment, as Actavis requires, courts must be able to calculate its value," the judge wrote. "However, not all non-monetary payments are impossible to value. There are many plausible methods by which plaintiffs may calculate the value of non-monetary terms. I agree with the bulk of the recent decisions holding that courts need not restrict the definition of 'payments' under Actavis to cash.
"Here, the parties' own settlement states that the patentee (Endo/Teikoku) shall give the infringer (Watson) 'brand product of value totaling $12 million per month on the first business day of each month beginning Jan. 1, 2013 and ending Aug. 1, 2013,'" Orrick continued, citing the agreement. "Watson expected this term to generate close to $96 million from these sales, and plaintiffs allege that it did. This term is not a complex, multifaceted payment; rather it is a simple transfer of a fungible product. Calculating its value is straightforward, and plaintiffs have plausibly alleged facts sufficient to support their calculations. This payment is also reverse because it flowed from the patentee to the alleged infringer."
Endo/Teikoku's agreement to delay the release of their own generic version also constituted a reverse payment, Orrick said. And the unions made an adequate case - at least at this point in the action - that both payments were excessively large and unjustified at an estimated $226 million, he added.
But Orrick stopped short of buying the argument that the drugmakers' settlement was illegal per se under the Sherman Act. And he dismissed the unions' federal and state claims that an exclusive distribution agreement between Endo and Teikoku amounted to a monopoly.
The judge also dismissed a number of state-law, consumer-protection claims made by groups who purchased Lidoderm patches on behalf of their members. Indirect purchases do not qualify for consumer protection in those states, Orrick said in the 51-page ruling.
Similarly, the unjust enrichment claims tethered to prohibited state-law claims failed, although the drugmakers must make a state-by-state analysis for others in order to fully prevail on their motion to dismiss all of the unjust enrichment claims.
But in California, where courts have held that unjust enrichment is not a stand-alone claim under state law, Orrick fully dismissed that cause of action filed by Golden State plaintiffs with prejudice.
A case management conference is slated for Jan. 6.
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