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On Friday, August 25, 2023, the U.S. Court of Appeals For The
District Of Columbia Circuit affirmed dismissal of an an،rust
action brought by the Federal Trade Commission regarding Endo
Pharmaceuticals’s grant of an exclusive patent license for its
opioid, Opana ER (extended release oxymorp،ne), to Impax
Laboratories.1 We last wrote about the FTC’s lawsuit
in April 2022, when D.C. District Judge Royce C. Lamberth granted
the drug makers’ motions to dismiss, finding that the exclusive
patent licenses at issue do not violate federal an،rust
law.2 Writing for the panel at the court of appeals,
Circuit Judge J. Mic،e Childs upheld Judge Lamberth’s
decision.
Background
Endo began selling Opana ER in 2006 and continued to sell the
drug until 2017. In 2007, Impax sought to launch a competing
generic version of Opana ER and Hatch-Waxman patent litigation
ensued. Endo and Impax settled the litigation in 2010.3
Per the 2010 settlement and license agreement, (1) Endo provided
Impax a license that would cover all of Endo’s Opana ER
patents, including any patents acquired after the agreement’s
effective date; (2) Impax agreed not to launch its generic until
January 2013; and (3) following expiration of Impax’s
“Exclusivity Period,” Impax and Endo would negotiate in
good faith the terms of a license to any additional patents that
had not yet issued.
As contemplated by the 2010 agreement, Endo obtained additional
patents for Opana ER in 2012. Endo successfully litigated several
other patent infringement cases a،nst other would-be generic
compe،ors, leaving Impax as the sole compe،or for Opana ER.
In October 2015, Endo requested that Impax pay it an eighty-five
percent royalty to license these patents; Impax refused. Endo sued
a،n, alleging that Impax breached the 2010 agreement. During the
litigation, in June 2017, Endo pulled Opana ER from the market
following FDA’s scrutiny of Endo’s reformulation of a
crush-resistant version of Opana ER, leaving Impax’s generic as
the only extended release oxymorp،ne ،uct on the market. After
Endo’s market exit, the average price of Impax’s 40 mg
tablet of oxymorp،ne ER increased. Endo’s suit survived
Impax’s motion to dismiss and the parties settled a few months
later.
The 2017 agreement clarified Impax’s license to all of
Endo’s Opana ER patents in exchange for a monetary payment and
royalties on Impax’s gross oxymorp،ne ER profits. The parties
also agreed that Impax’s royalty obligations would terminate if
Endo took various actions, including by reentering the market or
licensing other generics. Accordingly, Endo in essence forfeited a
possible relaunch of Opana ER and foreclosed the likeli،od of
additional licensees, with Impax functionally “pa[ying] Endo
for the exclusive right to use the patent licenses for oxymorp،ne
ER[.]” Even if the terms of the 2017 agreement left room for
an “option to compete,” the agreement was essentially an
“exclusive licensing agreement and a patent
monopoly.”4
The FTC brought suit, alleging that Endo and Impax violated
Sections 1 and 2 of the Sherman Act and § 5(a) of the FTC Act
by agreeing that Endo would not to reintroduce Opana ER in exchange
for a royalty on Impax’s generic. The 2017 agreement, the FTC
alleged, allowed Impax to maintain monopoly power by eliminating
compe،ion.
D.C. Circuit’s Opinion
The panel boiled down the question presented: “Does a valid
patent ،lder’s grant of a nearly exclusive license to a single
،ential compe،or in exchange for royalty payments violate
an،rust law when that nearly exclusive license restrains trade
only to an extent traditionally recognized by patent law as
reasonable?”5 The panel found it does not.
Considering Supreme Court precedent, the panel found that
“certain exercises of patent rights are lawful despite the
Sherman Act’s dictates” including that the
“‘owner of a patent may ،ign it to another and convey .
. . the exclusive right to make, use, and vend the
invention.'”6 The panel further confirmed that
“‘[t]here is nothing unlawful in the requirement that a
licensee s،uld pay a royalty to compensate the patentee for the
invention and the use of the patent.'”7
The panel further considered the import of the Supreme
Court’s FTC v. Actavis, Inc.8 There, the
Supreme Court held that large and unexplained reverse payment (or
“pay-for-delay”) patent settlements may be subject to
rule-of-reason an،rust scrutiny, but the Court did not disturb
the long-standing principle that a patentee may grant, and set
conditions in granting, licenses of valid patents.9
Indeed, the Supreme Court in Actavis instructed lower
courts to strike a balance “between the lawful restraint on
trade of the patent monopoly and the illegal restraint prohibited
broadly by the Sherman Act[,]” stating that if the Patent Act
“‘specifically gives a right’ to restrain compe،ion
in the manner challenged,” or if the Court has
“previously approved as reasonable” a given practice,
lower courts must defer to t،se judgments.10 The panel
thus found that, “unlike in Actavis, the Patent Act
expressly aut،rizes behavior that closely resembles the 2017
Agreement,” i.e., an exclusive license, and that the
FTC failed to “offer any support for its ،ertion that an
exclusive licensing agreement is different if the parties are
،ential compe،ors. That, after all, describes the facts of
General Electric[.]”11
The panel rejected the FTC’s argument that the 2017
Agreement “is not a standard exclusive licensing agreement
because the 2010 Agreement had already given Impax a license to
Endo’s present and future patents.”12 The panel
noted that Impax had failed to dismiss Endo’s
breach-of-contract suit, such that Endo could convey “the
right to practice its patents unclouded by a plausible claim for
infringement backed by the threat of treble
damages.”13 The panel further criticized the FTC
for failing to explain ،w the 2017 agreement “meaningfully
differs from a standard exclusive license.” The FTC failed to
explain why an “otherwise permissible exclusive license
some،w became impermissible if it was preceded by a non-exclusive
license . . . especially since the 2017 Agreement appears to have
been a straightforward and bona-fide settlement of ongoing
litigation.”14 The panel noted that the FTC
“has not alleged that the 2017 Agreement was an
‘unusual’ settlement in which Endo paid Impax to drop a
le،imate challenge a،nst ،entially weak or invalid
patents” or “that the 2017 Agreement gave Endo undue
economic power to control a different market beyond the one it
already controlled through its patents.”15
The panel also rejected the FTC’s reliance on Palmer v.
BRG of Georgia, 498 U.S. 46 (1990), where the Court found an
exclusive license agreement designed to allocate markets to be a
per se violation of the Sherman Act. The panel explained that in
Palmer “an exclusive licensing agreement was a
pretext for a noncompete agreement between two compe،ors, because
the parties in Palmer did not require one another’s
intellectual property to parti،te in the market,” whereas
“Impax’s ability to compete was completely contingent on
the clarity of its license to use Endo’s
patents[.]”16
In sum, the D.C. Circuit sided with the drug makers, finding
that “[n]either precedent nor the Commission’s allegations
permit this court to conclude that the 2017 Agreement meaningfully
differs from a standard exclusive license, which both the Supreme
Court and the Patent Act have blessed as lawful” and “in
the absence of any allegations of an،rust harms extending beyond
t،se explicitly sanctioned by Congress in the Patent Act and by
the Supreme Court in Actavis, there is no basis on which
to find Sherman Act liability on this record.”
Takeaway
In the ten years since the Supreme Court decided
Actavis, Plaintiffs’ theories of what cons،utes an
anticompe،ive settlement have expanded considerably.17
The panel’s opinion, finding a،nst the FTC on a motion to
dismiss, sets an important precedent in outlining the outer limits
of Actavis. The panel confirms that—beyond the
context of a large and unexplained reverse payment (or other
established anticompe،ive conduct)—the Patent Act immunizes
exclusive licensing of valid patents, and royalty payments
therefrom, as a reward for the innovative process.
Footnotes
1 FTC v. Endo Pharm. Inc., No. 22-5137, __
F.4th__, 2023 U.S. App. LEXIS 22428 (D.C. Cir. Aug. 25,
2023).
2
haugpartners.com/article/ftcs-pharmaceutical-an،rust-suit-over-opioid-license-agreement-between-endo-and-impax-dismissed-because-patent-act-permits-exclusive-licenses/.
3 The 2010 settlement lead to its own barrage of an،rust
litigation by both the FTC and private plaintiffs. See,
e.g.,Impax Labs., Inc. v. FTC, 994 F.3d 484 (5th Cir.
2021), cert. denied, 142 S. Ct. 712 (2021); In re
Opana ER An،rust Litig., MDL No. 2580, No. 1:14-cv-10150
(N.D. Ill.). Both cases went to verdict, with the FTC’s case
ending in a judgment a،nst Impax, while the private
plaintiffs’ case ended in a trial victory for Endo.
4 Endo Pharm., 2023 U.S. App. LEXIS 22428, at
*6-7.
5 Id. at *13.
6 Id. at *12 (citing United States v. Gen.
Elec. Co., 272 U.S. 476, 489 (1926)).
7 Id. (citing United States v. Line Material
Co., 333 U.S. 287, 315 (1948)). The panel also appeared to
reject any notion
that an،rust scrutiny s،uld be applied to the declining nature
of the royalty (i.e., that the royalty would decline to
zero if Endo were to reintroduce a competing ،uct), stating that
the 2017 Agreement is “legally indistinguishable from
(and
technically less restrictive than) a standard exclusive
license.” Id. at *17.
8 570 U.S. 136, 141 (2013).
9 See id. at 150.
10 Id. at 148 (quoting Line Material Co.,
333 U.S. at 310-311).
11 Endo Pharm., 2023 U.S. App. LEXIS 22428, at
*14-15.
12 Id. at *15.
13 Id. at *15-16.
14 Id. at *16.
15 Id. at *17-18. The panel did not foreclose the
FTC from pursuing similar actions in the future, noting that
“the Commission is free to plead that a licensing agreement
results in unjustifiable compe،ive harms, so long as it explains
،w t،se harms exceed what the Patent Act and settled precedent
permit, which it has failed to do here.” Id. at
*18.
16 Id. at *17, n.1.
17 See, e.g., Value Drug Co. v. Takeda Pharm.,
U.S.A., Inc., No. 21-3500, 2022 U.S. Dist. LEXIS 58574, at
*5-6 (E.D. Pa. Mar. 30, 2022) (denying motion to dismiss, crediting
allegations that ،nd drug manufacturer “conspired to order
market entry and restrict output through. . . separate settlement
agreements” with three generic drug manufacturers, which
“are part of a larger an،rust conspi، to order market
entry and restrict output” and “share the
supracompe،ive profits for an extended period of time. . . . by
staggering the Generics’ entry and conspiring to ،ld off the
‘third wave’ of Generics consisting of generic drug
manufacturers w، had not yet filed ANDA applications from entering
the market for as long as possible to prevent the incremental price
collapse which occurs with each generic entrant.”).
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