Pay-for-Delay Agreements: Pharmaceutical Antitrust Class Actions

Pharmaceutical antitrust litigation continues to give rise to significant class actions, and one area that remains especially active is challenges to so-called “pay-for-delay” agreements. These suits target arrangements in which brand-name manufacturers provide compensation, cash or otherwise, to potential generic competitors in exchange for delaying generic entry. The Federal Trade Commission estimates that these deals cost consumers roughly $3.5 billion annually.

From Early Litigation to the Actavis Framework

Pay-for-delay disputes frequently arise within the Hatch-Waxman framework, which creates both incentives and friction points between brand and generic drug manufacturers. During the 2000s, the FTC and private plaintiffs pursued several challenges to these settlements, but many early cases faltered when courts held that such arrangements were permissible if they stayed within the scope of the relevant patent.

The US Supreme Court shifted the analysis in FTC v. Actavis (2013), holding that reverse-payment settlements are subject to antitrust scrutiny under the rule of reason. The Court rejected categorical rules of legality or illegality, instead requiring case-specific evaluations of competitive effects. Since Actavis, outcomes have varied widely based on the facts and the nature of the alleged consideration.

Illustrative Case: In re Lipitor Antitrust Litigation

One of the most notable examples is In re Lipitor Antitrust Litigation, involving allegations that Pfizer and Ranbaxy entered a reverse-payment settlement to delay generic Lipitor. Plaintiffs argued that Pfizer’s decision to drop a separate, high-value patent case over Accupril amounted to a non-cash payment worth hundreds of millions of dollars.

The district court dismissed the case, finding the allegations insufficiently detailed. The Third Circuit reversed, holding that the lower court imposed a heightened pleading requirement inconsistent with Actavis and Twombly. The court emphasized that plaintiffs need not offer precise economic valuations or rebut every possible justification at the pleading stage. Following remand, the case produced substantial settlements for direct purchasers and end payers, with some claims and parties continuing to litigate. The litigation underscores that courts are willing to scrutinize both cash and non-cash forms of consideration.

Class Certification Challenges: EpiPen and Niaspan

Two additional pharmaceutical matters illustrate the ongoing complexity of certifying classes in this area.

1. In re EpiPen Direct Purchaser Litigation

Direct purchasers alleged that Mylan and several pharmacy benefit managers engaged in a scheme involving bribes and kickbacks to preserve EpiPen’s monopoly and support steep price increases. The district court denied certification, finding the proposed class failed Rule 23(a)’s numerosity and adequacy requirements and Rule 23(b)(3)’s predominance requirement.

Three key factors included:

• The class consisted of at most 46 members after accounting for limitations and standing.
  
• Major wholesalers controlled over 90% of alleged damages and had incentives that diverged sharply from those of the named plaintiffs.
  
• Plaintiffs could not demonstrate a workable method for proving causation on a class-wide basis, particularly given the complex pricing dynamics in the market.
  

The decision highlights the difficulties of certifying direct purchaser classes where individual negotiations, contractual variations, and intra-class conflicts loom large.

2. In re Niaspan Antitrust Litigation

The Third Circuit reaffirmed its demanding ascertainability standard when reviewing a proposed class of indirect purchasers alleging a pay-for-delay arrangement involving Niaspan. Plaintiffs relied on pharmacy benefit manager data to identify class members, but the court found the data insufficiently reliable. The records contained only numerical codes and could not differentiate between end payers, fully insured plans, and administrative intermediaries.

Expert attempts to infer class membership were inconsistent, including misclassification of sample entities. Given roughly 20 million transactions in the dataset, the court held that identifying class members would require individualized fact-finding incompatible with Rule 23. The ruling underscores the need for clear, administratively feasible methodologies in markets with complex chains of payment and reimbursement.

More than a decade after Actavis, pay-for-delay and related pharmaceutical antitrust actions remain a significant avenue for class litigation. Courts continue to grapple with how to evaluate non-cash consideration, measure competitive effects, and handle the procedural challenges inherent in certifying direct and indirect purchaser classes. Recent decisions confirm that while these cases can lead to substantial recoveries, success depends heavily on the specific economic, evidentiary, and class-certification issues at play.