Federal Judge Refuses to Dismiss Suit in Provigil Antitrust Case

In one of the most closely watched antitrust cases on the Eastern District of Pennsylvania's docket, a federal judge has refused to dismiss claims that biopharmaceutical giant Cephalon Inc. established an illegal monopoly for its profitable drug Provigil by paying more than $200 million in settlements to four generic manufacturers in return for agreements that they would delay going to market with cheaper versions of the drug.

The Provigil settlements sparked a wave of lawsuits -- including one brought by the Federal Trade Commission -- that accused Cephalon of conspiring with the four generic manufacturers to form classic anti-competitive horizontal agreements.

The suits alleged that Cephalon concocted a "reverse payment" scheme in which it filed patent suits against the four generic firms and then, instead of pressing those claims, opted to make a series of hefty payments to the defendants to preserve its monopoly.

But lawyers for Cephalon and the four generic firms insisted that the law was on their side and that such settlements are precisely what Congress envisioned when it revamped the process for bringing generic drugs to market in the Hatch-Waxman Act.

The four generic firms named as defendants are: Barr Pharmaceuticals Inc., Teva Pharmaceutical Industries, Ranbaxy Laboratories Ltd. and Mylan Laboratories Inc.

In court papers, defense lawyers argued that courts have consistently approved of such Hatch-Waxman settlements -- even those with "reverse payments" -- so long as the settlements do not restrict competition to any greater extent than the patent itself.

But plaintiffs lawyers pointed to a decision by the 6th U.S. Circuit Court of Appeals that declared reverse payment schemes to be per se illegal.

Now U.S. District Judge Mitchell S. Goldberg has declared in King Drug v. Cephalon (pdf) that the law is somewhere in between the extreme positions urged by both sides and that the case must proceed to discovery.

Reviewing the legal landscape, Goldberg noted that the 3rd Circuit has never addressed the issue of reverse payment schemes, but that the 6th Circuit's position has never been adopted by another circuit. Later decisions from the 11th, 2nd and Federal circuits, Goldberg found, called for a more nuanced approach in which courts scrutinize the particular facts of the reverse settlement agreements with a focus on whether they extend beyond the patent and whether they have anti-competitive effects.

"A reflexive conclusion that the agreements in question are per se antitrust violations, as urged by plaintiffs, and in particular the FTC, ignores the ‘exclusionary' patent rights afforded to Cephalon," Goldberg wrote.

A patent, Goldberg said, "grants its owner the lawful right to exclude others."

Goldberg found that his task was to "strike the proper balance between competing patent and antitrust principles."

As a result, Goldberg found that the 11th Circuit's focus on the scope of the patent was the best starting place for the analysis because it allows plaintiffs to pursue claims that the patent in question was procured by fraud or that the litigation that led to the reverse payment settlements was actually sham litigation brought solely for the purpose of delaying generic versions from coming to market.

Applying that test, Goldberg found that the plaintiffs survived the motion to dismiss.

"We find that sufficient facts have been alleged to establish that the agreements in question grant greater rights than those conferred under the patent," Goldberg wrote.

The complaints allege fraud and misrepresentations to the Patent and Trademark Office, Goldberg noted, as well as non-infringement, patent invalidity, "sham litigation," and the creation of a "bottleneck" in which the settling generic firms would have the power to effectively block any other generic version of the drug from coming to market by agreeing not to trigger the 180-day exclusivity provisions awarded to them by the Food & Drug Administration.

Cephalon is represented by attorneys Nancy J. Gellman, John A. Guernsey and Frank R. Emmerich Jr. of Conrad O'Brien in Philadelphia, along with James C. Burling, Peter J. Kolovos, Gregory P. Teran, Peter A. Spaeth and Mark A. Ford of Wilmer Cutler Pickering Hale & Dorr in Boston.

A proposed class of direct purchasers is represented by attorneys David F. Sorensen, Daniel Berger, Eric L. Cramer and Daniel Simons of Berger & Montague, along with Bruce E. Gerstein and Joseph Opper of Garwin Gerstein & Fisher in New York.

Attorneys Steve D. Shadowen and Monica L. Rebuck of Hangley Aronchick Segal & Pudlin represent a group of drug store chain plaintiffs including CVS, Rite Aid Corp. and Eckerd Corp.

And attorney Howard Langer of Langer Grogan & Diver represents Apotex Inc., a generic manufacturer that says it was harmed by the alleged antitrust conspiracy.

The FTC is represented by in-house attorneys Markus H. Meier, Bradley S. Albert, Elizabeth R. Hilder, Saralisa C. Brau and Mark J. Woodward.

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