Volume 67, Spring 2015, Issue 3

Volume 67, Spring 2015, Issue 3

Forward

AFTER ACTAVIS: SEVEN WAYS FORWARD

Michael A. Carrier

The Supreme Court’s decision in FTC v. Actavis is one of the most important antitrust decisions in the modern era. In one fell swoop, the Court eliminated the immunity that most lower courts had applied to “reverse payment”1 settlements (by which a brand-name drug company pays a generic firm to delay entering the market) and made clear that such agreements could violate the antitrust laws.

Despite its significance, the Actavis ruling was not the clearest decision ever. The Court could have provided more guidance for lower courts in structuring their antitrust analysis. This symposium consists of seven articles that provide some of the clarity missing in the Court’s decision. Respectively, the articles:

(1) explain why courts have misconstrued Actavis; (2) articulate the “Actavis inference” and show how it reveals errors in court opinions and scholarship; (3) offer a set of jury instructions that courts can use in reverse-payment cases; (4) explain why brand promises not to introduce their own generics constitute payment; (5) show how state law can target reverse-payment settlements; (6) explain why the Noerr-Pennington doctrine does not immunize reverse-payment settlements; and (7) demonstrate how Actavis can apply beyond the pharmaceutical industry.

Articles

DEACTIVATING ACTAVIS: THE CLASH BETWEEN THE SUPREME COURT AND (SOME) LOWER COURTS

Joshua P. Davis & Ryan J. McEwan

Numerous trial courts have misinterpreted the Supreme Court’s recent decision in FTC v. Actavis, Inc. An interesting question is why they have done so. Perhaps lower courts disagree with the Supreme Court about so-called “reverse payment” cases, the subject of the Actavis opinion. Or perhaps they simply have made random mistakes, as is perhaps inevitable, particularly in a challenging area of the law like antitrust. This Article suggests an alternative account: that lower courts are seeking clear guidance from Actavis, clear guidance that the Supreme Court has not tended to provide in antitrust cases in general and that it did not provide in Actavis in particular. This Article attempts to correct the ensuing confusion, and concludes with a modest suggestion about how the Supreme Court could minimize these sorts of difficulties in the future.

THE ACTAVIS INFERENCE: THEORY AND PRACTICE

Aaron Edlin, Scott Hemphill, Herbert Hovenkamp & Carl Shapiro

This paper is an effort to assist courts and counsel in implementing the Actavis Inference. First, we evaluate a variety of fact patterns that have arisen in the district courts since Actavis, including payment that takes a form other than cash. For example, a branded drug maker may promise not to offer an authorized generic drug. As we explain, under Actavis, such agreements are especially likely to violate antitrust law. We also consider how much detail a plaintiff must offer in its initial complaint to comply with federal pleading requirements.

Second, we demonstrate that the Actavis Inference fully applies when multiple generic firms, rather than just one, threaten to enter the market. Our economic model shows that the Actavis Inference becomes stronger and more important in the presence of multiple generic firms. Our analysis demonstrates that the contrary conclusions reached in a recent paper by Bruce Kobayashi, Joshua Wright, Douglas Ginsburg, and Joanna Tsai (“KWGT”) are incorrect, inconsistent with KWGT’s own analysis, or irrelevant to a faithful implementation of Actavis.

Third, we clarify the reasons not to litigate patents in antitrust cases. Thanks to the Actavis Inference, a trial court need not determine patent validity or infringement in order to assess the legality of the settlement. The antitrust question depends upon the ex ante prospects in patent litigation and not ex post litigation of the patent by a patent court or by the antitrust court considering the settlement. Litigating the patent is thus of limited probative value and not dispositive regarding a potential antitrust violation.

MODEL JURY INSTRUCTIONS: TRIAL BY ACTAVIS

David F. Sorensen & Steve D. Shadowen

The Supreme Court in FTC v. Actavis, Inc., reiterated the well-established doctrine that “overly restrictive patent licensing agreements” are subject to antitrust scrutiny “both within the settlement context and without.” The Court held that nothing in the Patent Act shields “reverse payments” in the pharmaceutical industry from such scrutiny. And rule-of-reason analysis of reverse payments is precluded by neither the “general legal policy favoring settlement” nor the “fear that antitrust scrutiny of a reverse payment agreement would require the parties to litigate the validity of the patent.”

The Actavis Court “leave[s] to the lower courts the structuring of the . . . rule-of-reason antitrust litigation.” In order to help courts provide that structure, this paper offers Model Jury Instructions and a Model Verdict Slip for a typical reverse payment case.

EIGHT REASONS WHY “NO-AUTHORIZED-GENERIC” PROMISES CONSTITUTE PAYMENT

Michael A. Carrier

This article first provides background on drug patent settlements and authorized generics. It then examines the Lamictal and Loestrin cases. Finally, it offers eight reasons why a no-AG promise constitutes payment. First, such a conclusion is consistent with the language of Actavis. Second, it accords with the facts of Actavis. Third, a no-AG pledge typically provides significant value to generics. Fourth, generics receive more through such promises than they would by winning patent litigation. Fifth, brands act against their self-interest in making no-AG promises, which reveals generics’ gain from the pledges. Sixth, treating no-AG promises as payment emphasizes substance over form. Seventh, such pledges can be more coercive than cash payments. And eighth, the clauses present a classic example of market division.

CIPRO’S $400 MILLION PAY FOR DELAY: HOW CALIFORNIA LAW AND COURTS CAN MAKE A DIFFERENCE IN REVERSE PAYMENT CHALLENGES

Cheryl Lee Johnson

 Using the In re Cipro I and II lawsuit as a case study, this Article explores the value and the broader opportunity that California antitrust and unfair competition laws, as well as California’s state court procedures, offer to plaintiffs challenging reverse payment agreements. Part I will detail the background of previous challenges to reverse payment agreements under federal law, both in the context of prior suits involving Cipro and in the suits culminating in the Supreme Court’s foray into this issue in FTC v. Actavis. It will also note some of the unresolved legal issues that remain even after Actavis. Part II will discuss some threshold challenges to the application of state law to reverse payments, and how these challenges can be easily overcome. Part III will conclude with a discussion of possible claims available under California law, noting the advantages these laws offer in language, scope, intent, and plain applicability, as compared to federal law, along with the procedural advantages of pursuing such claims in California courts. With these points in mind, it will be clear that plaintiffs and regulators seeking to challenge reverse payment agreements should strongly consider bringing claims under California law in addition to, or even in lieu of, federal antitrust claims.

NOERR-PENNINGTON AND REVERSE PAYMENT AGREEMENTS: A MATCH NOT MADE IN HEAVEN

Abiel Garcia

Part I of this paper provides a brief overview of the Noerr-Pennington doctrine, tracking its evolution through the Supreme Court and the basic policies that animate Noerr-Pennington protection. Part II will analyze three recent court cases in which defendants have raised a Noerr-Pennington defense with regard to their pay-for-delay agreements. Part III will discuss general arguments made by defense counsel as to why pay-for-delay agreements should be protected and then apply some of the current Noerr-Pennington paradigms to the agreements. Finally, Part IV will highlight some California-specific issues regarding application of the similarly motivated litigation privilege under California law (California Civil Code Section 47), and its application to pay-for-delay agreements.

BEYOND HATCH-WAXMAN

Shubha Ghosh

The Article proceeds as follows: Section Two offers a summary of the treatment of Actavis in contexts beyond that of reverse payment settlements. Section Three analyzes these differing contexts and presents the case for the third option for understanding Actavis. The topic of settlements of United States Patent and Trademark Office (USPTO) administrative proceedings is the key argument of Section Three. The Article ends with a conclusion and summary.

AGING OUT OF IN LOCO PARENTIS: TOWARDS RECLAIMING CONSTITUTIONAL RIGHTS FOR ADULT STUDENTS IN PUBLIC SCHOOLS

Mark Fidanza

Part II of this Note traces the evolution of the in loco parentis doctrine in American education from early colonial times through modern Supreme Court interpretations and discusses some of the criticisms of the doctrine as generally applied to education. Part III explains the traditional applications of in loco parentis to adult students both in public schools and in a college setting. Part IV discusses the implications for governing adult students under in loco parentis by analyzing the legal problems that would result under both the traditional and modern interpretations of the doctrine. Also included in Part IV is a review of practical concerns and suggestions for moving away from in loco parentis. Finally, Part V offers the conclusion that either statutory enactments or a judicial shift to a reasonableness standard would be more appropriate tools to rationalize a public school’s authority to restrict the constitutional protections of adult students.

Notes

RESURRECTING RULE 14A-11: A RENEWED CALL FOR FEDERAL PROXY ACCESS REFORM, JUSTIFICATIONS AND SUGGESTED REVISIONS

Christopher Takeshi Napier

This Note advocates revisiting Rule 14a-11. It also suggests several significant revisions to the Rule which would improve its effectiveness as a corporate governance tool, addresses many of the Rule’s criticisms, and allows the SEC to perform a stronger cost-benefit analysis. Part II of this Note begins by providing an overview of the role of shareholder voting in corporate governance and the two primary mechanisms shareholders use to discipline underperforming boards and management: hostile tender offers and proxy contests. It concludes that proxy contests are the most attractive mechanism for accomplishing effective board oversight. It then goes on to give a brief summary of Rule 14a-11 and its history. Part III acknowledges and addresses criticisms surrounding the Rule. Part IV establishes a framework for analyzing the Rule and the proposed revisions to it. Part V argues for several revisions to the Rule and discusses how those revisions improve upon it. Part VI discusses how the revisions could impact a future SEC cost-benefit analysis. Part VII briefly concludes.

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