The Federal Trade Commission filed a friend-of-the-court (amicus) brief in the U.S. Court of Appeals for the Second Circuit, clarifying the legal standards that apply in certain antitrust cases involving the pharmaceutical sector. The case relates to Forest Laboratories Inc. and six generic drug manufacturers’ alleged efforts to delay competition with Bystolic, Forest’s brand-name high blood pressure drug. In the Commission’s brief, the FTC urged the appeals court to reverse a district court’s decision to dismiss the case and recognize that large reverse payments Forest made to the generic companies may violate the antitrust laws.

Reverse-payment settlements, also known as pay-for-delay, are agreements in which a brand-name drug manufacturer pays a would-be generic competitor—whether in monetary or non-monetary form—to abandon a patent challenge and refrain from offering its generic drug product for a number of years. In this specific case, the plaintiffs, which are purchasers of Bystolic, allege that Forest used the pretext of contemporaneous business deals to mask reverse payments to six would-be generic rivals. Under these deals, the generic rivals agreed to stop challenging Forest’s patents and to refrain from selling generic versions of Bystolic for at least eight years.

In its landmark 2013 decision, Federal Trade Commission v. Actavis Inc., the U.S. Supreme Court held that “large” and “unjustified” reverse payments can violate the antitrust laws. Actavis, which stemmed from the FTC’s own pay-for-delay case against several pharmaceutical manufacturers, recognized that while some reverse payments may have legitimate business explanations, others may reflect nothing other than the settling parties’ desire to avoid competition. The Supreme Court placed the burden of justifying reverse payments principally on the defendants.

As detailed in the FTC’s amicus brief, the FTC argued that the U.S. District Court for the Southern District of New York erred when it dismissed plaintiffs’ allegations that Forest’s payments to the drug manufactures were unjustified, and that it wrongly offered its own hypothetical justifications for Forest’s side deals. Plaintiffs challenging a reverse payment settlement only need to plead market power and facts from which a court can infer a large and unjustified reverse payment was tendered.

In this case, the FTC argues plaintiffs did meet these standards. The district court was incorrect in dismissing their claims because the court did not place the burden principally on Forest and the other defendants to justify the reverse payments. As the brief explains, the district court also improperly found facts and drew inferences against the plaintiffs, unfairly faulted them for not producing evidence at the pleading stage and failed to assess the allegations of the complaint holistically.

Unless corrected, the district court’s ruling threatens to impair the effective enforcement of antitrust laws in the pharmaceutical industry, the FTC told the Second Circuit.

The Commission vote approving the filing of the amicus brief was 3-0.