By Saranac Hale Spencer, From The Legal Intelligencer

The Federal Trade Commission’s biggest settlement to date—$1.2 billion in a pay-for-delay case—came out of federal court in Philadelphia on Thursday.

Cephalon, now owned by Teva Pharmaceutical Industries, agreed to settle a suit filed by the FTC in 2008 over the company’s reverse-payment arrangements with generic drugmakers.

Reverse-payment settlements are the deals made by major pharmaceutical companies with generic drugmakers in order to keep the cheaper drugs off the market and, in this case, Cephalon had made deals with four generic drugmakers ranging from $25 million to $164 million to protect its name-brand wakefulness drug called Provigil.

The judge handling the case, U.S. District Judge Mitchell S. Goldberg of the Eastern District of Pennsylvania, has to approve the settlement before it is final.

Although Markus Meier, the FTC’s lead attorney on the case, wasn’t sure how long it would be before the judge would rule, he said he didn’t expect that Goldberg would wait too long.

The case had been scheduled to go to trial in June.

Lawyers who practice in the area had anticipated the trial since it would have been the first opportunity to see how the FTC would try a case post-Actavis, said Jeffrey Brennan, a lawyer at McDermott Will & Emery in Washington, D.C. He wasn’t involved in this case, but he had led the FTC’s health care services and products division until 2005.

In 2013, the U.S. Supreme Court issued a decision that stopped short of saying that reverse payments are illegal, but has been largely interpreted to discourage them. That case was FTC v. Actavis and the questions it left open were a major part of the litigation in the Cephalon case in front of Goldberg.

The size of the settlement in this case, which McDonnell Boehnen Hulbert & Berghoff lawyer Paul Berghoff called “eye-popping,” highlights the understanding that companies can’t exchange anything that “feels like, smells like” value.

Berghoff, who is based in Chicago, wasn’t involved in this case, but practices complex patent litigation involving pharmaceuticals.

This settlement might add “a little fuel to the fire,” he said, but won’t likely have a huge effect because “the message is already very clear,” major pharmaceutical manufacturers can’t pay generics to stay off the market. After Actavis, companies have curbed reverse-payment deals, he said, so there will surely be more suits brought for deals made years ago—as were the Cephalon deals at issue in this case—but there won’t likely be as many new deals to challenge.

The $1.2 billion settlement is “certainly a big number,” Brennan said, and the pharmaceutical industry will take note of it, but its significance is largely in illustrating and reinforcing where the FTC stands on this issue.

The FTC will use the size of the settlement to reinforce to the public that this is an important issue and that it will continue to pursue it, Brennan said.

In a prepared statement released Thursday, FTC chairwoman Edith Ramirez said, “Today’s landmark settlement is an important step in the FTC’s ongoing effort to protect consumers from anti-competitive pay-for-delay settlements, which burden patients, American businesses, and taxpayers with billions of dollars in higher prescription drug costs. Requiring wrongdoers to give up their ill-gotten gains is an important deterrent.”

Last month, Goldberg ruled on the issue of whether the FTC would be able to go after six years of profits by pursuing disgorgement—it could, he ruled.

When the FTC filed its suit in 2008, it had initially only sought injunctive relief to keep Cephalon from enforcing the settlements and making new ones in the future.

But, following Goldberg’s 2011 finding in a related case that Cephalon’s patent for the active ingredient in Provigil was invalid, and the entry into the market of a generic version of the drug a year later, the FTC was prompted to change course and pursue disgorgement, according to Goldberg’s opinion on that issue.

“The FTC persuasively argues that the finding that Cephalon procured its patent by fraud as well as the entry of generic Provigil into the market in 2012 are ‘dramatic changes in circumstances since it brought its case’ and necessitate a change in the relief requested,” Goldberg said.

Cephalon had objected to the change, making several arguments, primarily that the section of the FTC Act under which the case was brought doesn’t allow the commission to seek equitable monetary relief.

That didn’t persuade the judge; he ruled the FTC would be allowed to pursue disgorgement.

The question of how disgorgement should be used has not had a unified answer from the five commissioners of the FTC—three Democrats and two Republicans.

Although all five voted to accept this settlement and to use disgorgement as a remedy, the two Republican commissioners wrote a separate statement Thursday.

“Notwithstanding our support for obtaining disgorgement in this case, we continue to have significant concerns about the commission’s use of this powerful remedial tool without commission guidance about when it will seek this remedy,” Commissioners Maureen Ohlhausen and Joshua Wright said in their statement, calling for guidance from the FTC for the firms that it regulates on when it will seek disgorgement in antitrust cases.

But, Brennan said, the bipartisan acceptance of this settlement and the pursuit of disgorgement is significant.

IMAGE; iStock

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