On Friday, the U.S. Supreme Court resolved a question I've devoted a lot of virtual ink to, opting to hear the Federal Trade Commission's challenge to an 11th Circuit Court of Appeals ruling that pay-for-delay settlements between brand-name pharmaceutical companies and rival generic makers don't violate antitrust laws rather than Merck's challenge to a 3rd Circuit ruling that pay-for-delay deals are presumptively illegal. In a decision known as K-Dur, you may recall, the 3rd Circuit explicitly broke with other federal appeals courts and said that pay-for-delay settlements -- in which brand-name manufacturers pay generics to drop patent challenges to their products, ensuring that lower-cost generics won't hit the market -- violate antitrust laws. But the justices apparently sided with the FTC and two of the defendants in the 11th Circuit litigation, which argued that it was important to hear a case involving the government, rather than a dispute between private parties.

Depending on how the justices end up ruling, the FTC case could still completely resolve the circuit split on the legality of pay-for-delay deals. (Intriguingly, Justice Samuel Alito recused himself.) But in the meantime, a New Jersey district court judge has offered his own spin on the 3rd Circuit's ruling, purporting to narrow the gap between his own circuit and other federal appellate courts.

On Thursday, U.S. Senior District Judge William Wallsgranted a motion to dismiss an antitrust class action against Teva and GlaxoSmithKline, which were accused of conspiring to keep a generic version of GSK's epilepsy and bipolar disorder drug Lamictal off the market. Walls found that the plaintiffs, a class of direct Lamictal purchasers, did not have a cause of action.

You might think that ruling is inconsistent with guiding precedent from the 3rd Circuit, which, after all, said settlements between generics and brand-name drug manufacturers that serve to keep generics off the market are illegal on their face. The plaintiffs, represented by (among others) Cohn Lifland Pearlman Herrman & Knopf and Garwin Gerstein & Fisher, argued in their opposition to the dismissal motion that the settlement between Teva and GSK -- reached on the final day of an infringement trial, after Teva won a ruling that one of GSK's patents was invalid -- did, in fact, delay the entry of a generic version of the medication. They also asserted that GSK granted valuable consideration to Teva when it agreed not to market its own generic version of Lamictal when its patents expired.

But Walls said not only that the settlement didn't have intangible value for Teva but also that intangible value doesn't make the deal illegal. By his reading of the 3rd Circuit's ruling, deals between generics and brand-name makers are presumptively illegal only if they involve an actual payment to the generic. The settlement between Teva and GSK involved no cash exchange, Walls found, so it's not actually a pay-for-delay deal.

"K-Dur's pressing concern is about uneven bargaining power -- companies with money buy off too easily generic challengers with lump payments," Walls wrote. "In settlement situations where monetary payments are off the table, companies with abundant cash have less leverage to delay entry of generic drugs. To be sure, the brand name company would need to find other bargaining chips to use in negotiation. GSK's promise not to enter the market with its own generic products is such an example. Nothing in K-Dur suggests that this would be an improper 'reverse payment' subject to antitrust scrutiny."

It will be interesting to see how the Supreme Court handles the question of what constitutes "pay" to the generics. If the justices agree with Walls that only cash on the barrelhead qualifies, their ruling may be more limited in scope than competition advocates such as the FTC would hope.

Teva's counsel, Jay Lefkowitz at Kirkland & Ellis, declined to comment. Neither plaintiffs lawyers nor GSK counsel at Pepper Hamilton returned calls.

(Reporting by Alison Frankel)

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