Litigator of the Week: Jay Lefkowitz of Kirkland & Ellis

For years, the Federal Trade Commission has been railing against so-called "pay-for-delay" deals, in which brand-name drug companies pay to keep generic competition off the market. After repeated setbacks, the agency finally gained a foothold in that war in August, when the U.S. Court of Appeals for the Third Circuit ruled in In Re K-Dur Anitrust Litigation that the deals are presumptively anticompetitive. That decision opened up a circuit split that helped prompt the U.S. Supreme Court to grant cert in a related pay-for-delay case, FTC v. Watson Pharmaceuticals Inc., last Friday.

Big Pharma and the antitrust bar both have a lot at stake as the high court considers the Watson appeal. In the meantime, on Dec. 6 Jay Lefkowitz of Kirkland & Ellis won a decision on pay-for-delay that gives the pharmaceutical industry some crucial breathing room where it needed it most, in the Third Circuit.

In a 12-page ruling, U.S. District Judge William Walls in Newark, N.J., dismissed a proposed class action alleging that a pay-for-delay deal between Teva Pharmaceutical Industries Ltd. and GlaxoSmithKline plc caused direct purchasers to overpay for the GSK drug Lamictal. The plaintiffs, with amicus support from the FTC, had urged the court to take a broad view of the K-Dur decision and to find the Teva-GSK deal anticompetitive. But Walls threw out the case instead, concluding that the drug companies' agreement didn't run afoul of the Third Circuit's holding because it didn't involve an overt payment.

Teva sought regulatory approval for a generic version of Lamictal in 2002, prompting GSK to file a patent infringement suit under the Hatch-Waxman Act. In 2005, a federal judge hearing the patent case indicated that he would invalidate a key claim in one of GSK's patents for the active ingredient in Lamictal. A win for Teva promised to give the company the exclusive right to sell a generic version of Lamictal for 180 days. After that 180 day exclusivity period, other generics would be able to follow in Teva's footsteps.

Unfortunately for Teva, its generic drug wasn't quite ready yet. So rather than see the case to a close, Teva settled with GSK. As in many such deals, no money changed hands. Instead, GSK agreed to delay the release of its own authorized generic version of Lamictal and to hold off on licensing the drug to other generic companies. That bought Teva time to work on its generic, without worrying about the 180-day exclusivity window lapsing. And GSK got to temporarily prolong its monopoly.

The deal caught the attention of plaintiffs lawyers, who brought cases against GSK and Teva across the country. The direct purchaser claims were consolidated before Walls in February, with Cohn Lifland Pearlman Herrmann & Knopf, Garwin Gerstein & Fisher, and other plaintiffs firms leading the charge.

Then the Third Circuit dropped its landmark August ruling in K-Dur. As we reported, the appellate court directed district court judges to "treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade." That test is far more plaintiff-friendly than the so-called "scope of the patent test" adopted by three other federal appellate courts, including the U.S. Court of Appeals for the Federal Circuit. Under that test, pay-for-delay deals pass muster long as the brand-name drug company doesn't get to extend its monopoly beyond the scope of its patent protect.

One of the companies on the losing end of K-Dur, Upsher-Smith Laboratories, hired Lefkowitz to file a cert petition at the U.S. Supreme Court in August. The same month, he moved on behalf of Teva to dismiss the Lamictal class action in Newark. To help Teva get around the newly-enshrined presumption that pay-for-delay deals are anticompetitive, Lefkowitz pointed out that Third Circuit's beef was with "payments" between drug companies. Since no cash changed hands in the Lamictal deal, K-Dur doesn't apply, he argued.

"Plaintiffs have not and cannot allege a 'reverse payment' here because the parties' agreement is limited to procompetitive early generic entry," Lefkowitz and Kirkland's Karen Walker wrote in their motion to dismiss. GSK, represented by Robin Sumner and Laura Shores of Pepper Hamilton, echoed the point in a parallel motion.

The plaintiffs firms countered that "payment" doesn't just mean cash. In light of Congress's desire to get low-cost generics in the hands of consumers, pay-for-delay deals are always presumptively anticompetitive, they argued, regardless of whether the consideration comes in the form of cash of other benefits.

Despite the FTC's insistence that the plaintiffs' interpretation was right, Walls didn't buy it. "The Court finds that the term 'reverse payment' is not sufficiently broad to encompass any benefit that may fall to Teva in a negotiated settlement," he ruled. The judge pointed that words like "buy" and "pay" are sprinkled through the Third Circuit's decision, suggesting that K-Dur "is directed towards settlements when a generic manufacturer is paid off with money, which is not the case here."

The next day, on Dec. 7, the Supremes passed over K-Dur in favor of granting certiorari in Watson Pharmaceuticals, a case out of the Eleventh Circuit. That means Lefkowitz won't get a direct shot at preserving pay-for-delay at the Supreme Court, though we're sure he'll be involved in amicus briefing.

According to the FTC's own analysis, most pay-for-delays don't involve cash payments. So its no wonder the agency tried to expand K-Dur's reach. Thanks to Lefkowitz, that bid has gotten off to a poor start, and the pharma industry has gotten a boost right before its battle at the high court.

REPRINTED WITH PERMISSION FROM THE DECEMBER 14, 2012 EDITION OF THE AM LAW LITIGATION DAILY© 2012 ALM. ALL RIGHTS RESERVED. FURTHER DUPLICATION WITHOUT PERMISSION IS PROHIBITED