Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 1 of 26 UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

Transcription

1 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 1 of 26 UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK In re Novartis and Par Antitrust Litigation 1:18-cv AKH This Document Relates to: All Direct Purchaser Actions DIRECT PURCHASER PLAINTIFFS OPPOSITION TO DEFENDANTS PARTIAL MOTION TO DISMISS PLAINTIFFS CONSOLIDATED AMENDED COMPLAINT

2 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 2 of 26 TABLE OF CONTENTS I. INTRODUCTION... 1 II. REGULATORY BACKGROUND... 3 III. FACTUAL BACKGROUND... 5 IV. ARGUMENT... 7 Agreements Like the Challenged Agreement Are Per Se Unlawful... 7 Intellectual Property License Agreements Can Be Subject to Per Se Liability... 9 Actavis Did Not Eliminate Per Se Liability for Market Allocation or Output Restriction Agreements, Absent Settlement of Patent Litigation Plaintiffs Have Adequately Pled That the License Agreement Is a Naked Horizontal Market Allocation Agreement Novartis s and Par s Agreement to Restrict Authorized Generic Exforge Output Independently Warrants Per Se Treatment V. CONCLUSION ii

3 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 3 of 26 TABLE OF AUTHORITIES FEDERAL CASES Bogan v. Hodgkins, 166 F.3d 509 (2d Cir. 1999)... 7 Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1 (1979)... 8 Commercial Data Servers, Inc. v. IBM, 2002 WL (S.D.N.Y. March 15, 2002)... 7 Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752 (1984) Freedom Holdings, Inc. v. Spitzer, 357 F.3d 205 (2d Cir. 2004)... 8 FTC v. Actavis, Inc., 570 U.S. 136 (2013) , 11-14, FTC v. Watson Pharms., Inc., 677 F.3d 1298 (11th Cir. 2012)... 11, 12 Hartford-Empire Co. v. United States, 323 U.S. 386 (1945)... 9, 10 In re Blue Cross Blue Shield Antitrust Litig., 308 F. Supp. 3d 1241 (N.D. Ala. 2018) In re K-Dur Antitrust Litig., 686 F.3d 197 (3d Cir. 2012) In re Mushroom Direct Purchaser Antitrust Litig., 2015 WL (E.D. Pa. May 26, 2015)... 8 Joblove v. Barr Labs., Inc. (In re Tamoxifen Citrate Antitrust Litig.), 466 F.3d 187 (2d Cir. 2006)... 11, 12 King Drug Co. of Florence, Inc. v. SmithKline Beecham Corp., 791 F.3d 388 (3d Cir. 2015) La. Wholesale Drug Co. v. Hoechst Marion Roussel, Inc. (In re Cardizem CD Antitrust Litig.), 332 F.3d 896 (6th Cir. 2003) N. Pac. Ry. Co. v. United States, 356 U.S. 1 (1958) Nat l Coll. Athletic Ass n v. Bd. of Regents, 468 U.S. 85 (1984)... 7, 8, 15 iii

4 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 4 of 26 Palmer v. BRG of Ga., Inc., 498 U.S. 46 (1990)... 2, 7, 10, 13, 15 Palmer v. BRG of Ga., Inc., 874 F.2d 1417 (11th Cir. 1989) Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005) Timken Roller Bearing Co. v. United States, 341 U.S. 593 (1951)... 9 United Food & Commer. Workers Local 1776 & Participating Emp'rs Health & Welfare Fund v. Teikoku Pharm. USA, Inc., 74 F. Supp. 3d 1052 (N.D. Cal. 2014)... 14, 17 United States v. Andreas, 216 F.3d 645 (7th Cir. 2000)... 8 United States v. Bayer Co., 135 F. Supp. 65 (S.D.N.Y. 1955)... 10, 16 United States v. Line Material Co., 333 U.S. 287 (1948)... 9, 13 United States v. Masonite Corp., 316 U.S. 265 (1942)... 2, 9 United States v. New Wrinkle, Inc., 342 U.S. 371 (1952)... 2, 9, 13 United States v. Sealy, Inc., 388 U.S. 350 (1967) United States v. Singer Mfg. Co., 374 U.S. 174 (1963)... 2, 9, 13 United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940)... 7, 10 United States v. Topco Assocs., 405 U.S. 596 (1972)... 7, 15, 16 FEDERAL STATUTES 15 U.S.C. 1 (2012)... passim 15 U.S.C. 2 (2012) U.S.C. 355 (2012)... 3, 4 35 U.S.C. 271 (2012)... 4 iv

5 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 5 of 26 SECONDARY SOURCES P. Areeda & H. Hovenkamp, Antitrust Law (2015 Supp.)...18 Fed. Trade Comm n, Authorized Generic Drugs: Short-Term Effects and Long-Term Impact (2011)...18 v

6 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 6 of 26 I. INTRODUCTION Direct Purchaser Plaintiffs 1 allege that Defendants 2 entered into an anticompetitive and unlawful agreement that delayed and restricted competition in the market for Exforge 3 (a drug used to treat high blood pressure), and its generic equivalents (the Agreement ). Pursuant to the Agreement, defendant Par delayed marketing its generic version of Exforge from September 21, 2012 until September 30, 2014 ( Period 1 ), and in return defendant Novartis refrained from marketing a competing authorized generic product during Par s 180-day period of regulatory exclusivity from September 30, 2014 to March 29, 2015 ( Period 2 ). The effect of the Agreement was: (i) to allocate the entire market for Exforge to Novartis during Period 1, permitting Novartis to continue charging monopoly prices free of lower-priced generic competition; and (ii) to allocate the entire generic segment of the market to Par during Period 2, permitting Par to charge higher generic prices during this period absent price competition from Novartis had it launched its authorized generic. The Agreement was a naked market division, a per se violation of the Sherman Act. Defendants do not dispute that the above-described conduct states viable antitrust claims under sections 1 and 2 of the Sherman Act. 15 U.S.C. 1, 2. Rather, Defendants contend that the conduct can be judged only under the rule of reason pursuant to FTC v. Actavis, Inc., 570 U.S. 136 (2013), rather than under the per se rule of illegality that typically applies to horizontal market allocation and output restriction agreements. But this case is readily distinguishable from 1 Direct Purchaser Plaintiffs ( Plaintiffs ) are Drogueria Betances, LLC; Rochester Drug Co- Operative, Inc.; and FWK Holdings, LLC. 2 Defendants are Novartis Pharmaceuticals Corporation and Novartis AG (together Novartis ); and Par Pharmaceutical, Inc. ( Par ). 3 Fixed combination valsartan and amlodipine.

7 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 7 of 26 Actavis, which involved the settlement of patent litigation in which the Court had to navigate between two competing policy considerations: encouraging settlement of litigation versus robust enforcement of the antitrust laws. Actavis, 570 U.S. at 136. In determining that the rule of reason generally governs patent litigation settlements, the Court harmonized the conflicting policy considerations that had split the circuit courts that previously had addressed this issue. To the extent that Defendants argue that Novartis could have sued Par, that is a nonsequitur because here, in sharp contrast to Actavis, there was neither litigation nor a litigation settlement. Instead, with no lawsuit pending, Defendants entered into a garden variety, per se illegal agreement under which Par would not compete with Novartis in Period 1, and Novartis would not compete with Par using an authorized generic in Period 2. Nothing in Actavis exempts such a naked market division agreement from the per se rule of illegality, irrespective of the nominal existence of a patent. To the contrary, Actavis relied on the Court s precedent in Palmer v. BRG of Ga., Inc., 498 U.S. 46 (1990). In Palmer, two horizontal competitors used an intellectual property license to divide a market between them. As the Court held, such agreements are anticompetitive regardless of whether the parties split a market within which both do business or whether they merely reserve one market for one and another for the other. 498 U.S. at The Supreme Court determined the agreement to be unlawful on its face. Id. at 50. Defendants Agreement and its impact on competition here are analytically indistinguishable from the one in Palmer. Actavis did not overrule Palmer, United States v. Masonite Corp., 316 U.S. 265 (1942), United States v. Singer Mfg. Co., 374 U.S. 174 (1963), United States v. New Wrinkle, Inc., 342 U.S. 371 (1952), or other Supreme Court cases recognizing that an intellectual property license does not immunize an otherwise illegal market allocation agreement among horizontal 2

8 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 8 of 26 competitors from the per se rule. In light of the longstanding precedent that patent license agreements may be subject to per se treatment under the antitrust laws, Defendants contention that their agreement can be analyzed only under the rule of reason standard is wrong, and their motion should be denied. II. REGULATORY BACKGROUND Under the Hatch-Waxman Amendments to the Food, Drug and Cosmetics Act ( the Hatch Waxman Act ), a generic manufacturer seeking to market a generic version of a brand name drug may file an Abbreviated New Drug Application ( ANDA ). Compl. 45 (ECF No. 41). In response to any unexpired patents the brand name company has listed in the FDA Orange Book, 4 the generic company may certify to the FDA either that it does not seek to market its generic product before the patent s expiration (a Paragraph III certification ); or that the patent is invalid, unenforceable, and/or will not be infringed by the generic manufacturer s proposed product (a Paragraph IV certification ). 21 U.S.C. 355(j)(2)(A)(vii); Compl. 47. If the generic company submits a Paragraph IV certification, it must provide to the brand company a notice letter explaining in detail why the brand s patent is invalid, unenforceable or not infringed. Compl. 48. To encourage patent challenges by generic companies, the Hatch-Waxman Act provides that the first company to submit a substantially complete ANDA with a Paragraph IV certification (the first-filer ) is eligible to enjoy 180 days of marketing exclusivity upon its 4 When the FDA approves a brand manufacturer s NDA, the brand manufacturer may list in the FDA s book of Approved Drug Products with Therapeutic Equivalence Evaluations (commonly called the Orange Book ) any patent that the brand manufacturer certifies (1) claims either the approved drug product or approved methods of using the drug product; and (2) could reasonably be asserted against a generic manufacturer who makes, uses, or sells the drug product without authorization prior to the expiration of the listed patent(s). 21 U.S.C. 355(b)(1), (c)(2); Compl

9 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 9 of 26 launch. 21 U.S.C. 355(j)(5)(B)(iv); 21 U.S.C. 355(j)(5)(D); Compl During this time, the FDA cannot grant final approval to the ANDA of any subsequent filer of a Paragraph IV certification ( later-filers ). Id. The brand manufacturer, however, may market an authorized generic (or AG ) under its own, previously approved new drug application ( NDA ) at any time, including during the first-filer s 180-day exclusivity period. Compl. 54, 64. An ANDA filer s Paragraph IV certification constitutes an artificial act of patent infringement and provides standing for the brand manufacturer to file suit (if it has a Rule 11 basis to do so). 35 U.S.C. 271(e)(2); Compl. 48. Accordingly, if the brand company disagrees with the reasoning set forth in the generic company s Paragraph IV certification notice letter, the brand company may file a lawsuit for patent infringement even before the generic has actually sold an allegedly infringing product. Compl. 48. This is part of a tradeoff embedded in the Hatch-Waxman Act designed to permit generic drugs to come to market faster, while giving brand companies additional avenues to protect or extend their patents. Compl. 43, 45. As part of this tradeoff, if a brand company sues a Paragraph IV filer within 45 days of receiving notice of a Paragraph IV certification, the FDA cannot grant final approval to the generic s ANDA until the earlier of (a) the passage of thirty months, or (b) the issuance of a decision by a court that the patent is invalid, unenforceable, or not infringed by the generic manufacturer s ANDA. 21 U.S.C. 355(j)(5)(B)(iii); Compl. 48. A brand manufacturer is not required to sue within 45 days of notice of a Paragraph IV certification and may sue later, but if it does not sue within 45 days of notice, the FDA can grant final approval to the ANDA at any time, without delay. Id. 49. Here, Novartis did not sue Par. Nor did it sue any other ANDA filers who 4

10 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 10 of 26 entered the market after Par without a license, notwithstanding Novartis s patents. III. FACTUAL BACKGROUND As of 2007, amlodipine (marketed under the brand name Norvasc ) and valsartan (marketed under the brand name Diovan ) were commonly prescribed for high blood pressure. Compl. 77. On June 20, 2007, Novartis received FDA approval to market Exforge, which is a tablet composed of a fixed-dose combination of amlodipine and valsartan. Id Exforge was launched soon thereafter and became one of the most commonly prescribed branded high blood pressure medicines. Id. 79. Novartis listed three patents in the Orange Book under New Drug Application No for Exforge: the 578 Patent; 5 the 197 Patent; 6 and the 728 Patent. 7 Compl. 4, 81. The 578 Patent, which disclosed and claimed the chemical compound valsartan, expired on March 21, A regulatory exclusivity 8 added to the end of the 578 Patent expired on September 21, Id. 81. In October 2007, Par filed an ANDA with the FDA containing a Paragraph III certification to the 578 Patent, meaning that it was going to wait for that Patent to expire before launching its generic version of Exforge. Id Par s ANDA also contained Paragraph IV certifications that the later-expiring 197 and 728 Patents 9 were invalid, 5 U.S. Patent No. 5,399, U.S. Patent No. 6,294, U.S. Patent No. 6,395, As a result of conducting tests in pediatric age groups, the FDA granted Novartis a six-month regulatory exclusivity called pediatric exclusivity. 9 The 197 Patent expired on June 18, The 728 Patent will expire on July 8, Compl. 4 n.1. 5

11 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 11 of 26 unenforceable and/or not infringed. Id Following this, Par sent Novartis a Paragraph IV notice letter concerning the 197 and 728 Patents. After receiving that Paragraph IV notice letter, Novartis opted not to sue Par on the 197 and 728 Patents. However, as a result of having not received a Paragraph IV certification from Par for the 578 Patent, Novartis knew that Par necessarily had filed a Paragraph III certification for the 578 Patent 10 and, as a result, Par would not obtain final FDA approval to market its generic version of Exforge before the September 21, 2012 expiration of the regulatory exclusivity added to the end of that patent. Id Par, having not been sued by Novartis with respect to its ANDA, declared publicly on several occasions that it fully intended to launch its generic Exforge in September of 2012, notwithstanding the 197 and 728 Patents. Id At no time did Novartis sue Par with respect to Par s ANDA. Id. 102, In 2011, several years after Novartis received Par s Paragraph IV notice letter, Novartis and Par entered into what they refer to as a license agreement. Defs. Br. at 1. In reality, this so-called license agreement was nothing more than a camouflaged naked horizontal market allocation or output restriction agreement extending Novartis s monopoly for two years, from September 21, 2012 (the expiry of the regulatory exclusivity added to the end of the 578 Patent) until September 30, Id. 6, 107, 115, 130. In exchange, Novartis agreed not to launch an authorized generic during Par s 180-day exclusivity period (even though Par held no patent on authorized generic Exforge), thereby allocating the entire generic segment of the market to Par 10 If Par had filed a Paragraph IV, it would have been required to notify Novartis. 6

12 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 12 of 26 during Par s 180-day exclusivity period. Id. at 6, 107, 113. The Agreement resulted in supracompetitive prices during both periods. In March 2015, after Par s 180-day exclusivity had expired, a wave of later-filers launched generic versions of Exforge. Tellingly, although neither the 197 nor the 728 Patents had expired, Novartis did not sue any of the later-filers or make any effort to delay or halt their launch. Id. 131, 133. Nor did Novartis require any of the later-filers to obtain a license for either patent. Id Equally tellingly, each of these later-filing generics launched despite lacking licenses to these unexpired patents. IV. ARGUMENT Agreements Like the Challenged Agreement Are Per Se Unlawful Certain agreements are deemed illegal per se because of their pernicious effect on competition and lack of any redeeming virtue. U.S. v. Topco Assocs., 405 U.S. 596, 607 (1972); United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223 (1940) ( Under the Sherman Act a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se. ). Conduct subject to per se condemnation includes market divisions. E.g., Palmer, 498 U.S. at 48; Commercial Data Servers, Inc. v. IBM, 00 Civ (CM) (LMS), 2002 WL , at *2 (S.D.N.Y. Mar. 15, 2002) (citing Bogan v. Hodgkins, 166 F.3d 509, 514 (2d Cir. 1999) ( To establish a per se violation of the Sherman Act, Plaintiff must allege anticompetitive conduct that falls into one of four categories: (1) price-fixing; (2) division of markets; (3) tying arrangements; or (4) group boycotts. ). Conduct subject to per se condemnation also includes agreements to restrict output. E.g., Nat l Collegiate Athletic Ass n v. Bd. of Regents, 468 U.S. 85, 100 (1984) ( Horizontal price 7

13 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 13 of 26 fixing and output limitation are ordinarily condemned as a matter of law under an illegal per se approach because the probability that these practices are anticompetitive is so high; a per se rule is applied when the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output. ) (emphasis added) (quoting Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, (1979)); see also Freedom Holdings, Inc. v. Spitzer, 357 F.3d 205, 225 (2d Cir. 2004) ( Horizontal agreements among competing sellers to fix prices or restrict output are, absent more, per se violations of Section 1 of the Sherman Act. ) (emphasis added) (citations omitted); United States v. Andreas, 216 F.3d 645, (7th Cir. 2000) (upholding criminal conviction under the per se rule where firms agreed to limit their production of lysine beyond a set volume, thereby leading to inflated prices); In re Mushroom Direct Purchaser Antitrust Litigation, 2015 WL , at *16 (E.D. Pa. May 26, 2015) ( An agreement among competitors to restrict the production of a certain good equates to a pricefixing agreement, because conspiracies to limit output are designed to raise, stabilize, or otherwise fix the price of goods. ). The Agreement in this case can be characterized as either a market allocation for fixeddose combination valsartan and amlodipine tablets, or alternatively as an agreement to restrict output of the same. The Agreement allocates the market in two ways: first, Par promises Novartis that it will not compete for two years, thereby allocating 100% of sales to Novartis during Period 1; second, Novartis promises Par that it will not compete with an authorized generic Exforge for the following 180 days, thereby allocating 100% of generic sales to Par during Period 2. Compl. 6, 13, 150, 176. The Agreement likewise restricts output in two ways: first, Par agrees to restrict its output of generic Exforge (entirely) for two years; second, Novartis agrees to restrict its output of authorized generic Exforge (entirely) for 180 days. Id. 8

14 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 14 of 26 Regardless of the perspective from which it is viewed, the Agreement is per se unlawful under controlling law, absent an exception. Intellectual Property License Agreements Can Be Subject to Per Se Liability No exception to per se liability exists merely because the Agreement is styled as a license. Courts have repeatedly recognized that the existence of an intellectual property license does not prevent application of the rule of per se illegality for market allocation and output restriction agreements. For example, in United States v. Masonite Corp., 316 U.S. 265 (1942), the Supreme Court held per se unlawful a series of agreements by which Masonite would license its patented hardboard to competitors, and the competitors would in return concede the validity of Masonite s patents. The Court held that this restriction of competition by horizontal competitors for the possibility of splitting monopoly prices was a per se violation of the Sherman Act. Id. at Also on point is United States v. Singer Mfg. Co., 374 U.S. 174 (1963), in which the Supreme Court held that a course of conduct involving the negotiation of a license and an assignment of a patent established a per se illegal conspiracy. See also United States v. New Wrinkle, Inc., 342 U.S. 371, (1952) (applying per se liability and explaining that [i]t is beyond question that... making of license contracts for the purpose of regulating distribution and fixing prices of commodities in interstate commerce is subject to the Sherman Act... Patents give no protection from the prohibitions of the Sherman Act... when the licenses are used, as here, in the scheme to restrain ); Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598 (1951) (affirming district court s finding of per se illegality for allocation of territories incidental to trademark licensing contracts); United States v. Line Material Co., 333 U.S. 287 (1948) (patent licensing scheme held per se illegal); Hartford-Empire Co. v. United States, 323 9

15 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 15 of 26 U.S. 386, (1945) (elaborate cartel of patent cross-licensees that assigned production quotas to its members held per se illegal); United States v. Bayer Co., 135 F. Supp. 65, (S.D.N.Y. 1955) (per se antitrust liability applied to trademark settlement agreement with exclusive licenses). Thus, in Palmer, competing bar review course providers BRG and HBJ entered into an agreement that gave BRG an exclusive [copyright] license to market HBJ s material in Georgia and to use its trade name Bar/Bri. The parties agreed that HBJ would not compete with BRG in Georgia and that BRG would not compete with HBJ outside of Georgia. 498 U.S. at 47. BRG would also pay HBJ $100 for every student it enrolled, and 40% of all revenues over $350. Id. The effect of HBJ and BRG s agreement was that the price of BRG s course was increased from $150 to over $400. Id. Despite the fact that HBJ had a copyright, 11 the Court condemned the agreement as unlawful on its face, id. at 50, because each [company] agreed not to compete in the other s territories. Id. at 48. The agreement thus was a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce, and therefore [was] illegal per se. Id. at 48 (quoting Socony-Vacuum Oil Co., 310 U.S. 150). The Court concluded that [s]uch agreements are anticompetitive regardless of whether the parties split a market within which both do 11 See Palmer v. BRG of Ga., Inc., 874 F.2d 1417, 1434 (11th Cir. 1989) (Clark, J., dissenting) ( BRG and HBJ disavow any intent to restrain trade and claim that their agreement is nothing more than an ordinary copyright royalty arrangement which courts have routinely sustained. ), rev d, 498 U.S. 46 (1990). 10

16 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 16 of 26 business or whether they merely reserve one market for one and another for the other. Id. at Actavis Did Not Eliminate Per Se Liability for Market Allocation or Output Restriction Agreements, Absent Settlement of Patent Litigation Contrary to Defendants argument, Actavis s application of the rule of reason to patent litigation settlements did not alter long-standing antitrust jurisprudence that otherwise treats horizontal market allocation or output restriction agreements as per se unlawful. Under Actavis, displacement of the per se rule applies only where the patent holder and alleged infringer have settled pending patent litigation and where the issue is whether the patent holder made a large reverse payment to its competitor (the alleged infringer) to induce the alleged infringer to drop its patent challenge. The presence of pending, good faith patent litigation, and a patent settlement are both key to why the rule of reason was held to apply. Neither pertains here. Actavis arose from a circuit split over whether patent concerns should predominate over antitrust concerns, or vice versa, in the narrow context of settlements of patent litigation. Certain circuits, like the Eleventh Circuit, 12 and this one, 13 had applied the so-called scope-of-thepatent test to rule that where the patent was not obtained by fraud, and where the infringement suit was not a sham, any patent litigation settlement that did not extend the facial temporal or subject matter scope of the patent in suit was lawful. The presumed exclusionary potential of the 12 FTC v. Watson Pharm., Inc., 677 F.3d 1298, (11th Cir. 2012). 13 In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187, (2d Cir. 2006). 11

17 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 17 of 26 patent, combined with the general policy favoring the settlement of litigation, 14 animated this reasoning. On the other side of the split was the Sixth Circuit which, in In re Cardizem CD Antitrust Litig., 332 F.3d 896, 908 (6th Cir. 2003), characterized a reverse payment settlement agreement as at its core, a horizontal agreement to eliminate competition in the market for Cardizem CD throughout the entire United States, a classic example of a per se illegal restraint of trade. And the Third Circuit likewise determined that antitrust concerns should predominate, holding in In re K-Dur Antitrust Litig., 686 F.3d 197, 218 (3d Cir. 2012) that a reverse payment to settle a patent lawsuit constituted prima facie evidence of an unreasonable restraint of trade, which made the quick-look test appropriate. Actavis rejected these approaches, instead holding that reverse payment litigation settlements are subject to the rule of reason. It rejected the scope-of-the-patent test, because referring simply to what the holder of a valid patent could do does not by itself answer the antitrust question. Actavis, 570 U.S. at 147. Specifically, [a] valid patent excludes all except its owner from the use of the protected process or product,... [b]ut an invalidated patent carries with it no such right. And even a valid patent confers no right to exclude products or processes that do not actually infringe. The paragraph IV litigation in this case put the patent s validity at 14 Watson, 677 F.3d. at 1314 ( the FTC s approach would... undo much of the benefit of settling patent litigation, and discourage settlements. Our legal system can ill afford that. ); In re Tamoxifen, 466 F.3d at 202 ( We begin our analysis against the backdrop of our longstanding adherence to the principle that courts are bound to encourage the settlement of litigation. ) (internal quotation marks omitted.); Schering-Plough Corp. v. F.T.C., 402 F.3d 1056, 1075 (11th Cir. 2005) ( There is no question that settlements provide a number of private and social benefits as opposed to the inveterate and costly effects of litigation. ). 12

18 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 18 of 26 issue, as well as its actual preclusive scope. Id. (quoting Line Material Co., 333 U.S. at 308) (emphasis in original). The Court likewise declined to adopt the FTC s argument that reverse payment settlement agreements are presumptively unlawful. Actavis, 570 U.S. at It did so while maintaining that per se liability for various intellectual property licensing schemes is still appropriate, including by its citations to Palmer, Singer, Line Material, and New Wrinkle. As the Court explained over and over again, the rule of reason applied because of the existence of patent infringement litigation between the brand and the generic, and the reverse payment settlement agreement s role in terminating that litigation litigation and settlement that are utterly absent here because Novartis never sued Par nor any other ANDA filer. 15 For instance, the Court in Actavis described the presenting problem as: Company A sues Company B for patent infringement. The two companies settle under terms that require (1) Company B, the claimed infringer, not to produce the patented product until the patent s term expires, and (2) Company A, the patentee, to pay B many millions of dollars. Because the settlement requires the patentee to pay the alleged infringer, rather than the other way around, this kind of settlement agreement is often called a reverse payment settlement agreement. Actavis, 570 U.S. at (emphasis added). The Court affirmed that [a]pparently most if not all reverse payment settlement agreements arise in the context of pharmaceutical drug regulation, and specifically in the context of suits brought under [the Hatch-Waxman Act]. Id. at 141 (emphasis added). 16 Defendants themselves point out that the Supreme Court rejected the 15 As explained above, Novartis did not sue any of the later-filers even though they entered the market before the expiry of the 197 and 728 Patents, without a license. Supra at See also Actavis, 570 U.S. at 146 ( Because different courts have reached different conclusions about the application of the antitrust laws to Hatch-Waxman-related patent settlements, we granted the FTC s petition. ); id. at 154 ( The rationale behind a [large] payment... cannot in every case be supported by traditional settlement considerations. ); id. at 156 (considering possible pro-competitive justifications in the context of traditional settlement considerations ); 13

19 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 19 of 26 quick look framework for reverse payment settlements only, noting the Court s statement that [w]e do not believe that reverse payment settlements, in the context we here discuss, meet this criterion. Defs. Br. at 10 (quoting Actavis, 570 U.S. at 159) (Defendants emphasis). Each of the other cases Defendants cite also deals with the reverse payment settlement of a patent lawsuit. 17 But in this case, there was no suit, there was no settlement, and there was no alleged infringer. As the Defendants acknowledge in the first sentence of their brief, [t]hese consolidated actions arise from a license agreement, not a patent litigation settlement agreement. Defs. Br. at 1. Accordingly, the policy tension supporting Actavis s rule of reason approach namely, whether policies favoring private settlements of litigation outweigh policies disfavoring anticompetitive agreements under the antitrust laws is absent here. Plaintiffs Have Adequately Pled That the License Agreement Is a Naked Horizontal Market Allocation Agreement. As alleged in the Complaint, under Plaintiffs per se theory, Defendants conduct falls outside the context of a patent litigation settlement agreement, and the conduct here is instead a naked horizontal market allocation or output restriction agreement. Compl. 69, 130, 177. Between September 21, 2012 and September 30, 2014, Par ceded the entire market for fixed combinations of valsartan and amlodipine to Novartis. Id. And between September 30, 2014 and March 29, 2015, Novartis agreed it would not launch an authorized generic Exforge, allocating the entire generic segment of the market to Par for 180 days, which was worth id. at 158 ( Although the parties may have reasons to prefer settlements that include reverse payments, the relevant antitrust question is: What are those reasons? ). 17 See United Food and Comm. Workers Local 1776 & Participating Employers Health and Welfare Fund v. Teikoku Pharma USA, Inc., 74 F. Supp. 3d 1052, (N.D. Cal. 2014); King Drug Co. of Florence v. Smithkline Beecham Corp., 791 F.3d 388, 404, 413 (3d Cir. 2015). 14

20 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 20 of 26 hundreds of millions of dollars. Compl. 67. As the Supreme Court held, one of the classic examples of a violation of 1 is an agreement between competitors at the same level of the market structure to allocate territories in order to minimize competition. Topco, 405 U.S. at 608. See also Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 768 (1984) ( certain agreements, such as [] market allocation, are so inherently anti-competitive that each is illegal per se without inquiry into the harm it has actually caused ); 18 Nat l College Athletic Ass n, 468 U.S. at 100 (horizontal restraints related to prices or territories are per se illegal as a matter of law); N. Pac. Ry. Co. v. U.S., 356 U.S. 1, 5 (1958) (market division agreements are unlawful in and of themselves). This case is analytically identical to Palmer. Just as BRG allocated the entire market outside of Georgia to HBJ in exchange for a copyright license to use HBJ materials in Georgia without competition from HBJ, Par allocated the Exforge market to Novartis for 2 years in exchange for a patent license to launch a generic without competition from Novartis s authorized generic Exforge for the next 180 days. And just as in Palmer, Par and Novartis shared the monopoly profits. See also Topco, 405 U.S. at (reversing district court s opinion applying rule of reason since licenses that provided licensees with exclusive rights to distribute Topco branded products limited to distinct geographies was a per se horizontal restraint); U.S. v. Sealy, Inc., 388 U.S. 350, (1967) (licensing deal was per se unlawful where a group of competitors agreed to a licensing scheme to divide geographic markets for exclusive rights to 18 The Court explained that: [c]oncerted activity inherently is fraught with anticompetitive risk. It deprives the marketplace of the independent centers of decisionmaking that competition assumes and demands. In any conspiracy, two or more entities that previously pursued their own interests separately are combining to act as one for their common benefit. This not only reduces the diverse directions in which economic power is aimed but suddenly increases the economic power moving in one particular direction. Copperweld, 467 U.S. at

21 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 21 of 26 distribute Sealy brand mattresses); 19 In re Blue Cross Blue Shield Antitrust Litig., 308 F. Supp. 3d 1241, 1263, 1269 (N.D. Ala. 2018) (applying per se liability to a scheme whereby insurance plans agreed to accept licenses to offer only Blue Cross and Blue Shield branded insurance and only within distinct geographic territories); Bayer, 135 F. Supp. at 71 (license agreement entered nominally as part of a trademark dispute settlement was per se unlawful because dominant purpose was to divide pharmaceutical markets). Novartis s and Par s Agreement to Restrict Authorized Generic Exforge Output Independently Warrants Per Se Treatment There is an independent reason why the Agreement should not be held exempt from the usual rule of per se liability for agreements dividing markets or restricting output. Even if this Court were to accept Defendants argument that the patent license Novartis granted to Par means that Par s delay of generic Exforge should be analyzed under the rule of reason (and as shown above, it should not be), there is absolutely no basis for the Court to accept Defendants related argument that Novartis s agreement to delay launch of its authorized generic Exforge is subject only to the rule of reason. That is because Defendants do not because they cannot argue that Par had any patent or other intellectual property right blocking Novartis from launching authorized generic Exforge. As a result, the portion of the Agreement allocating 100% of generic sales to Par for 180 days (where, equivalently, Novartis agreed to entirely restrict its 19 To the extent that the Court may appear to have conditioned per se treatment of the licensing scheme on the fact that there was also a centralized price list and thus a price-fixing component, the Court in Topco later clarified that [t]o the extent that Sealy casts doubt on whether horizontal territorial limitations, unaccompanied by price fixing, are per se violations of the Sherman Act, we remove that doubt today. 405 U.S. at 609 n.9. 16

22 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 22 of 26 output of authorized generic Exforge for 180 days) is appropriately judged under the rule of per se liability. To Plaintiffs knowledge, only one case has addressed the question whether an agreement to delay an authorized generic is cognizably a per se illegal market allocation or output restriction agreement: United Food and Comm. Workers Local 1776 & Participating Emp rs Health and Welfare Fund, 74 F. Supp. 3d at That case is distinguishable, as it involves a patent litigation settlement agreement. Moreover, that court ruled erroneously, Plaintiffs believe that any promise a brand patent holder makes to a generic infringer in a patent litigation settlement agreement must be judged by the rule of reason under Actavis. But a no-ag agreement (which was not at issue in Actavis) stands on very different footing from other promises a brand can make to a generic for two reasons that require applying the traditional per se liability standard typically afforded to coordinated output restriction agreements: (a) it represents the brand s (not the generic s) agreement to restrict its own output, and (b) the generic has no intellectual property right it can assert against the brand to block an authorized generic, and so none of the reasons that led the Court in Actavis to apply the rule of reason is present. First, the Agreement here between two horizontal competitors to prevent the sale of an authorized generic version of Exforge during Par s 180-day exclusivity had the purpose and effect of restricting Novartis s output of authorized generic Exforge for this 180-day period and allocating 100% of generic sales over that period to Par. By design, the Agreement thus permitted Par to charge higher prices for its generic Exforge than it otherwise could have with 17

23 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 23 of 26 Novartis s authorized generic Exforge on the market. 20 The Agreement therefore had a clear pernicious effect on competition an effect which is recognized as more pernicious than if induced by a cash reverse payments in the context of a litigation settlement agreement (like the one at issue in Actavis). 21 Second, Novartis s promise to delay its authorized generic Exforge cannot possibly be classified as connected with any intellectual property license, because Par had no intellectual property right to block Novartis s authorized generic Exforge. Par had no intellectual property right in authorized generic Exforge at all. Defendants do not argue otherwise. Even if FDA regulations could be viewed as an intellectual property right that could be licensed (and they cannot), the 180-day exclusivity that Par enjoyed for generic Exforge did not and could not prevent Novartis from launching an authorized generic. Compl. 54, 64. There was nothing 20 The FTC has found that the presence of authorized generic competition reduces the first-filer generic s revenues by 40 to 52 percent, on average during the first-filer exclusivity period. Fed. Trade Comm n, Authorized Generic Drugs: Short-Term Effects and Long-Term Impact, at iii, 33 (Aug. 2011) ( FTC Report ) (available at (last accessed Oct. 17, 2018). This is because [i]ntroducing an AG during exclusivity might be expected to add a competitor to the lone ANDA-generic and, consequently, to reduce generic prices (id. at 38), and therefore generic prices during exclusivity are lower in markets with an AG than in markets without an AG. Id. at 40. Also, the AG takes generic sales away from the first-filer. Id. at vi. 21 See Areeda & Hovenkamp, Antitrust Law 2046d6 (2015 Supp.) ( No authorized generic agreements in fact place a second market exclusion agreement (i.e., generic versus generic, for 180 days following generic entry) on top of the first one[.] The outcome is more anticompetitive than a large cash payment for delay. * * * [T]he no authorized generic provision compensates the generic with something far more troublesome namely, a second market division that serves to keep prices higher during the 180-day period when other generic firms are unable to enter the market. ) (emphasis added); id. (under a no authorized generic agreement, consumers would still feel the full burden of the pay-for-delay agreement during the time covered by the settlement up to the day that the generic begins production, but then they would have the additional burden of lessened competition during the 180-day period of initial generic production, when the pioneer might otherwise enter with its own authorized generic ) (emphasis added). 18

24 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 24 of 26 for Par to license to Novartis that Novartis needed to launch an authorized generic Exforge. The only bar to Novartis s launch of authorized generic Exforge was the Defendants own naked agreement not to compete for the 180-day period after Par s market entry. As a result, even if the Court were to accept Defendants argument that the patent license Novartis granted to Par requires Par s delay of generic Exforge to be analyzed under the rule of reason, Novartis s delay of authorized generic Exforge must be analyzed under the rule of per se liability. V. CONCLUSION For the reasons set forth herein, Plaintiffs respectfully request that Defendants Motion to Dismiss be denied. DATED: October 24, 2018 Respectfully submitted, /s/ Dan Litvin FARUQI & FARUQI, LLP Kristyn Fields (No. KF-4461) 685 Third Ave., Floor 26 New York, NY Tel.: (212) Fax: (212) kfields@faruqilaw.com FARUQI & FARUQI, LLP Peter Kohn Joseph T. Lukens One Penn Center Suite John F. Kennedy Boulevard Philadelphia, PA Tel: (215) pkohn@faruqilaw.com jlukens@faruqilaw.com BERGER & MONTAGUE, P.C. David F. Sorensen Caitlin G. Coslett 1818 Market Street Suite 3600 GARWIN GERSTEIN & FISHER LLP Bruce E. Gerstein Joseph Opper Dan Litvin (No. DL-6312) 88 Pine Street, 10th Floor New York, NY Tel: (212) Fax: (212) bgerstein@garwingerstein.com jopper@garwingerstein.com dlitvin@garwingerstein.com SMITH SEGURA & RAPHAEL, LLP David Raphael Erin Leger Susan Segura 3600 Jackson St., Ste. 111 Alexandria, LA Tel: (318) Fax: (318) draphael@ssrllp.com eleger@ssrllp.com ssegura@ssrllp.com 19

25 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 25 of 26 Philadelphia, PA Tel: (215) Attorneys for Plaintiff Rochester Drug Co-Operative, Inc. and the direct purchaser class KAPLAN FOX & KILSHEIMER, LLP Robert N. Kaplan Matthew P. McCahill Ralph E. Labaton 850 Third Avenue, 14th Floor New York, New York Tel: Fax: VANEK, VICKERS & MASINI P.C. Joseph M. Vanek David P. Germaine 55 W. Monroe, Suite 3500 Chicago, Illinois Tel: Fax: ODOM & DES ROCHES John Gregory Odom Stuart Des Roches Andrew Kelly Dan Chiorean Poydras Center 650 Poydras Street, Suite 2020 New Orleans, LA Tel: (504) Fax: (504) HEIM PAYNE & CHORUSH LLP Russell A. Chorush Miranda Jones 1111 Bagby, Suite 2100 Houston, TX Tel: (713) Fax: (713) Attorneys for Plaintiff Drogueria Betances, LLC and the direct purchaser class Attorneys for Plaintiff FWK Holdings, LLC and the direct purchaser class 20

26 Case 1:18-cv AKH Document 101 Filed 10/24/18 Page 26 of 26 CERTIFICATE OF SERVICE I, Dan Litvin, hereby certify that I caused a copy of the foregoing to be filed electronically via the Court s electronic filing system on all counsel of record. Dated: October 24, 2018 /s/ Dan Litvin Dan Litvin 21