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When “Pay-for-Delay” Becomes “Delay-Without-Pay”: Humira Antitrust Claims

By Laura Karas

In June 2020, the U.S. District Court for the Northern District of Illinois dismissed state and federal antitrust claims against AbbVie, maker of Humira (adalimumab), for accruing more than 130 patents on the top-selling drug and asserting allegedly unmeritorious patent infringement claims against makers of adalimumab biosimilars. AbbVie then settled the patent infringement litigation by entering into agreements with eight drug makers to allow adalimumab biosimilars to enter the U.S. market in 2023 and the European market in 2018.

In my last post, I discussed the district court’s memorandum opinion finding that “the vast majority” of AbbVie’s conduct was not “objectively baseless petitioning” and was therefore immunized under the Noerr-Pennington doctrine. In this post, I explore several problematic aspects of the court’s reasoning for rejecting the claims of pay-for-delay and market allocation.

The Illinois District Court Dismissed Pay-for-Delay and Market-Allocation Claims

The complaint against AbbVie alleged, among other things, that the settlements amounted to unlawful “pay-for-delay” deals in violation of § 1 of the Sherman Act, and that the settlements entailed market allocation (also in violation of § 1 of the Sherman Act), because AbbVie permitted earlier entry of adalimumab biosimilars in Europe, allegedly in exchange for delayed entry in the United States. Both § 1 claims were rejected, and Judge Shah of the Illinois district court granted a motion to dismiss the suit.

In reaching a conclusion that no plausible § 1 violations were alleged, Judge Shah placed weight on several factors. First, AbbVie’s settlement agreements allow biosimilars to enter the U.S. market before the expiration of Humira patents, albeit several years into the future, and thus they increase competition and benefit consumers. Second, there was no reverse payment to the makers of the adalimumab biosimilars (i.e., the alleged infringers), and no exclusivity given to any particular biosimilar manufacturer, and thus no evidence of sharing of monopoly profits in exchange for delayed market entry.

The opinion sums up the settlements nicely: they “allow for early entry without a payment.”

Did Actavis Hold that No Reverse Payment Absolves a Settlement of Antitrust Scrutiny?

In FTC v. Actavis, the Supreme Court held that a large reverse payment from a patent-holder to an alleged infringer in exchange for a delay in market entry could be anticompetitive.

“[I]t is normally not necessary to litigate patent validity to answer the antitrust question,” the opinion in Actavis reads (emphasis added). Why? Because “[a]n unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival” (emphasis added). In other words, a large reverse payment usually signals a weak (i.e., probably invalid) patent.

But what about cases such as this one, in which a reverse payment is absent?

The district court’s memorandum opinion states, “Actavis identifies a settlement that allows early entry but without the patentee paying a competitor to stay out of the market as one type of agreement that is not an antitrust problem.”

But did Actavis go so far as to label such settlements not problematic with respect to antitrust law? That is certainly not Actavis’s holding, and it would be questionable dicta. Judge Shah is likely referring to this line from Actavis:

“[Parties] may, as in other industries, settle in other ways, for example, by allowing the generic manufacturer to enter the patentee’s market prior to the patent’s expiration, without the patentee paying the challenger to stay out prior to that point.” 

Embedded in the Court’s reasoning is the implication that absent a reverse payment, but with other grounds for anticompetitive concern, it may become necessary to assess the patent(s)’s validity.

Whether “Early-Entry” Settlements Are Procompetitive Depends on the Underlying Patent’s Validity

The Illinois district court calls “early entry” settlement agreements “examples of permissible settlements.” But a key unstated assumption is the validity of the underlying patents. Early-entry settlements are only procompetitive to the extent the underlying patents are valid. If the underlying patents are invalid, then the “early entry” is anticompetitive because it unlawfully extends the patent-holder’s monopoly, and thus isn’t really “early entry” at all.

I argue here, and have argued in a similar vein elsewhere, that without some assessment of the validity of the patent or patents at issue, the merits cannot be reached on the question of whether an entry date is procompetitive or anticompetitive. It is true that patents issued by the U.S. Patent and Trademark Office may warrant a presumption of validity under normal circumstances. But the existence of upwards of 130 Humira-related patents, many of which are alleged invalid, should lead the court to discard a presumption of patent validity in pay-for-delay cases such as this one, and to assess patent validity prior to reaching the merits on the antitrust claims.

The Illinois district court correctly recognizes that lack of direct payment from the patent-holder to the alleged infringer is not decisive in assessing pay-for-delay deals. But Judge Shah rejects the possibility that a revenue stream to the makers of biosimilars from early European market entry could qualify as a reverse payment, concluding that “the package of global patent settlements” was “not an Actavis-like unlawful reverse-payment” and was “of the kind that did not worry the Court in Actavis.”

Perhaps geographically disparate market entry dates did not concern the Court in Actavis because the Court did not contemplate that labeling the size of direct payments a “surrogate” of a patent’s weakness — and so a signal of an anticompetitive settlement — would lead companies to find more creative ways to reach a “win-win” exchange of value. Judge Shah places too much weight on what may have been a myopic oversight by the Court in Actavis.

Consumers Are Worse Off When Biosimilars Could Have Entered the Market Sooner

The memorandum opinion goes on to state that “when AbbVie agreed to let Amgen, Sandoz, and Samsung Bioepis enter the European and U.S. markets earlier than they might have been able to otherwise, consumers won and the market for Humira (and its generics) became more competitive.”

The key question here is, as compared to what? What is the counterfactual? If the underlying patents were invalid, then adalimumab biosimilars could have entered the market in Europe and the United States before the agreed-upon settlement date of 2023. In comparison to that scenario, U.S. consumers lost when U.S. market entry was postponed for an additional five years.

Judge Shah concludes: “[B]ecause all the agreements are of a type specifically permitted by Actavis and because they deliver value to consumers, plaintiffs have not plausibly alleged the existence of an agreement that restrained competition.” But if the two predicates here are inaccurate, if Actavis did not (or did not intend to) definitively release from antitrust scrutiny settlements with an early entry date and no accompanying payment, and if an “early-entry” date is not in fact early but instead delayed due to invalidity of the relevant patents, then the antitrust allegations are not so implausible after all.

The Illinois district court conveniently interpreted Actavis to make for a tidy grant of a motion to dismiss, but not for a tidy assessment of the merits.

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Laura Karas

Dr. Laura Karas is a student at Harvard Law School and a Petrie-Flom Student Fellow for the 2020-21 academic year.

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