Third Circuit Tosses $448 Million Penalty in Pay-for-Delay Case

PHILADELPHIA (CN) — The Third Circuit threw out an order Wednesday that required two drugmakers to disgorge $448 million for trying to keep generic versions of their testosterone replacement drug AndroGel off the market, while also finding them liable for monopolization.

The case dates back to 2014, when the Federal Trade Commission sued AbbVie and Besins Healthcare over reverse-payment settlements that the companies made with Teva and Perrigo in an effort to delay those firms’ generic versions of AndroGel.

The FTC argued that AbbVie and Besins filed sham infringement lawsuits to get the deals. Under the deal with Teva, AbbVie and Besins agreed to supply the company with a generic version of another drug, TriCor.

The common industry practice known as “pay-for-delay” involves pharmaceutical companies paying or otherwise incentivizing a competing company to keep cheaper generic drugs off the market. Critics say the backroom deals choke competition and spike prescription drug costs.

In 2018, a federal judge ordered AbbVie and Besins to pay a combined total of $448 million, despite the FTC calculating that the drug companies raked in some $1.2 billion in illegal profits from the scheme.

The FTC appealed to the Third Circuit back in January, asking for an injunction to stop AbbVie and Besins from filing more sham lawsuits and to find that the lower court erred in reaching its disgorgement order. The Philadelphia-based appeals court denied the injunction request in a 99-page ruling Wednesday.

Writing for the unanimous three-judge panel, U.S. Circuit Judge Thomas Hardiman found that AbbVie and Besins have not shown a pattern of filing sham lawsuits, having only done it twice, and therefore it is unlikely they will do it again.

Hardiman, a George W. Bush appointee, also said the lower court did not have authority under federal law to require the drug companies to turn over ill-gotten profits.  

“Section 13(b) [of the Federal Trade Commission Act] authorizes a court to ‘enjoin’ antitrust violations. It says nothing about disgorgement, which is a form of restitution, not injunctive relief,” the judge wrote. “Thus, Section 13(b) does not explicitly empower district courts to order disgorgement.”

However, Hardiman did find that AbbVie and Besins are liable for monopolization for their filing of a patent infringement suit against Perrigo for its generic version of AndroGel. Further, the unanimous decision reinstated claims by the FTC regarding another sham suit by AbbVie against Teva and its generic drug. 

“The district court erred by dismissing the FTC’s claims to the extent they relied on a reverse-payment theory,” Hardiman wrote. “The FTC plausibly alleged an anticompetitive reverse payment. It alleged AbbVie and Besins filed sham lawsuits against Teva and Perrigo in order to trigger the automatic, 30-month stay of FDA approval on its generic version of AndroGel.”

Hardiman said the panel was unpersuaded by the argument that the deal between Teva and AbbVie promoted competition.

“It elevates form over substance because companies could avoid liability for anticompetitive reverse payments simply by structuring them as two separate agreements—one in which the generic company agrees to delay entry until patent expiration, and the other in which the brand-name company agrees to split monopoly profits,” the ruling states.

Hardiman added, “Because the FTC plausibly alleged the TriCor deal was a reverse payment, the settlement may have been ‘something more than just an agreed-upon early entry’—it may have been ‘pay-for-delay’. And pay-for-delay is anticompetitive even if the delay does not continue past patent expiration.”

U.S. Circuit Judges David Porter and Peter Phipps, both appointed by President Donald Trump, joined Hardiman on the panel.

AbbVie was represented by WilmerHale attorney Seth Waxman. The FTC was represented by its attorney Matthew Hoffman. Neither party immediately responded to a request for comment Wednesday.

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