FTC’s Pharmaceutical Antitrust Suit Over Opioid License Agreement Between Endo and Impax Dismissed Because Patent Act Permits Exclusive Licenses
On Wednesday, March 30, 2022, Judge Royce C. Lamberth of the U.S. District Court for the District of Columbia, released a redacted opinion dismissing the Federal Trade Commission’s follow-on antitrust suit regarding Endo Pharmaceuticals’ grant of an exclusive license for the blockbuster opioid, Opana ER (extended release oxymorphone), to Impax Laboratories.1 Judge Lamberth found that the exclusive license does not violate federal antitrust law because the Patent Act protects such arrangements.
The FTC filed this case in January 2021, claiming that Endo and Impax’s 2017 settlement, in which Endo allegedly promised to stay off the Opana ER market, violated the Sherman Act. The FTC had previously prevailed in a challenge of a 2010 settlement between Endo and Impax that ended patent litigation over the same drug. Under that 2010 settlement, Endo paid Impax more than $100 million to keep Impax’s generic off the market until 2013. Endo settled the first FTC lawsuit in 2017; Impax did not. In April 2021, the Fifth Circuit affirmed the FTC’s finding that the 2010 settlement was an unlawful reverse payment deal.2 Private class action litigation remains pending in the U.S. District Court for the Northern District of Illinois against both Endo and Impax related to the 2010 settlement.3
In 2017—the same year that Endo settled the first FTC suit—Endo and Impax reached another deal regarding Opana ER, resolving a breach of contract dispute over the 2010 settlement. The 2017 settlement, FTC alleged, resulted from the U.S. Food and Drug Administration’s demand that Endo pull a reformulated crush-resistant version of Opana ER from the market due to its increased intravenous abuse. That withdrawal left Impax’s generic as the only available extended release oxymorphone product on the market.4
In the 2010 settlement, Endo provided Impax with a license to any then-issued as well as any future patents that could cover Opana ER. The settlement ensured that Impax could sell its generic even if Endo later obtained additional patents covering the drug. The settlement required Endo and Impax to “negotiate in good faith an amendment to the terms of the License to any [later-issued] patents.”5 Nine other companies sought to market generic Opana ER products; Endo sued and settled with each. None of these later settlements included a license for future patents as Impax had received.
The U.S. Patent and Trademark Office issued Endo additional patents covering Opana ER—including a patent that is set to expire in November 2029. Through these newly issued patent, Endo prevented all producers of generic Opana ER from launching until 2029. But not Impax; the 2010 settlement licensed Impax for these additional patents.
In 2015, Endo demanded that Impax pay it an 85% royalty for its license to the later-issued patents. Impax refused and Endo sued for breach of the 2010 settlement’s good faith negotiation clause. Endo and Impax settled the breach-of-contract suit in 2017, with Impax paying an undisclosed (but less than 85%) royalty to Endo. Under certain circumstances (some undisclosed)—including if Endo were to relaunch Opana ER—Impax’s royalty drops to zero. Following the settlement, Endo abandoned any effort to relaunch Opana ER and the average price of Impax’s generic product increased.
Judge Lamberth first noted that the U.S. Supreme Court’s landmark decision in FTC v. Actavis, Inc.6 threw the “uneasy détente” between the Sherman Act, which prohibits anticompetitive conduct, and the Patent Act, which encourages innovation through the grant of a legal monopoly, into flux.7 Actavis addressed a reverse-payment or “pay-for-delay” settlement, and as Judge Lamberth noted, “[n]o-Circuit case has applied the analysis in Actavis to patent activity beyond·reverse-payment settlements.”8
Addressing the issue of first impression, Judge Lamberth found that Actavis did not apply to the 2017 settlement. Here, Endo had a valid patent monopoly—which had been unsuccessfully challenged—and thus had a right to give Impax an exclusive license rather than “competing or licensing other competitors.”9 “While some patent-related activity can violate antitrust law, the FTC has alleged nothing more than the type of exclusive licensing agreement and patent monopoly expressly provided for by the patent laws and repeatedly approved of by the Supreme Court. Consequently, the FTC has not adequately alleged an antitrust violation.”10
After finding the 2017 settlement to constitute an exclusive license, Judge Lamberth recounted the maxim that “[a]ctivities specifically authorized by the patent laws do not violate antitrust law unless they threaten areas of competition ‘other than those protected by the patent.’”11 Looking to the agreement, Judge Lamberth analyzed whether the 2017 settlement sought to restrain competition beyond the scope of Endo’s patents: First, Judge Lamberth stated that the validity of Endo’s patents had been repeatedly tested and that the “Federal Circuit has held Endo’s patents valid multiple times.” Thus, “[t]here is no question generic oxymorphone ER infringes on Endo’s patents. Endo’s ‘right to exclude’ is undisputed [and] there is no concern that Endo may be paying Impax not to challenge the validity of Endo’s patents or its patents’ preclusive effect on generics.”12 Second, the Patent Act approves of exclusive licenses and royalties can be set as a share of profits rather than a set fee. Because Endo’s patents are unquestionably valid, it has a “right to exclude” and pursue its patent monopoly, including by way of licensing only one company, excluding all others—including itself. That the licensee can charge supracompetitive prices is a feature of the Patent Act, not a bug in search of the antitrust laws.13 Third, the 2017 settlement sets no minimum resale price for Impax nor is it an agreement between two patentees to pool patents as Impax did not share any related patents with Endo.14 Fourth, the FTC only alleged conduct related to the Opana ER market; FTC did not allege that Endo·or Impax have attempted to dominate or curtail any other market or expand the monopoly in any way.15 Thus, the license fell within the scope of Endo’s patent monopoly. Fifth, the 2017 settlement reflects a “commonplace form” of settlement expressly recognized by Actavis as lawful.16
Finally, Judge Lamberth rejected the FTC’s argument that Endo had already waived its “right to exclude” as to Impax in the 2010 settlement.17 The FTC argued that in reaching the 2010 settlement, Endo had already provided Impax with a patent license over the future Opana ER patents such that in 2017, Endo could not exclude itself from the market by virtue of the license. Judge Lamberth found that Endo “did not waive its right to exclude other companies or itself from the market—and an exclusive license does just that.”18 He also found the argument to be factually incoherent as Endo sued Impax for breach of the 2010 Agreement. Crediting Impax, Judge Lambert found that “the FTC ‘proposes a radical rule: that in granting a conditional license, a patent holder gives up its patent rights as to a licensee even where the licensee fails to satisfy the conditions.’”19 Judge Lambert refused to credit such a “radical rule.”
In sum, Judge Lamberth found the 2017 settlement to be nothing more than a run-of-the-mill exclusive licensing agreement to which the strictures of Actavis do not reach. Outside of the reverse payment context, the Patent Act immunized such anticompetitive conduct as being the product and reward for the innovative process. As such, Judge Lamberth dismissed in full FTC’s complaint.
This decision offers a stark reminder that Actavis applies only in the “unusual” circumstance where “the paragraph IV litigation  put[s] the patent’s validity at issue, as well as its actual preclusive scope[,]” and in settling such litigation “the plaintiff agree[s] to pay the defendants many millions of dollars to stay out of its market, even though the defendants did not have any claim that the plaintiff was liable to them for damages.”20 Absent that circumstance, “[t]he Patent Act explicitly gives a right to maintain a patent monopoly.”21
A copy of this opinion is available here.
This article was published in the May 2022 issue of The Licensing Journal.