In Re: Loestrin 24 FE v.

United States Court of Appeals
For the First Circuit

Nos. 14-2071,
15-1250

IN RE: LOESTRIN 24 FE ANTITRUST LITIGATION

AMERICAN SALES COMPANY, LLC, on behalf of itself and all others
similarly situated; ROCHESTER DRUG CO-OPERATIVE, INC.,
on behalf of itself and all others similarly situated,

Plaintiffs, Appellants,

CITY OF PROVIDENCE, RHODE ISLAND, individually and on behalf
of itself and all others similarly situated; UNITED FOOD AND
COMMERCIAL WORKERS LOCAL 1776 & PARTICIPATING EMPLOYERS HEALTH
AND WELFARE FUND, individually and on behalf of all others
similarly situated; NEW YORK HOTEL TRADES COUNCIL & HOTEL
ASSOCIATION OF NEW YORK CITY, INC. HEALTH BENEFITS FUND,
individually and on behalf of all others similarly situated;
FRATERNAL ORDER OF POLICE, FORT LAUDERDALE LODGE 31,
INSURANCE TRUST FUND, individually and on behalf of all others
similarly situated; ELECTRICAL WORKERS 242 & 294 HEALTHCARE &
WELFARE FUND, individually and on behalf of all others similarly
situated; DENISE LOY, a resident citizen of the State of
Florida, individually and on behalf of all others similarly
situated; MELISA CHRESTMAN, a resident citizen of the State of
Tennessee, individually and on behalf of all others similarly
situated; MARY ALEXANDER, a resident citizen of the State of
North Carolina, individually and on behalf of all others
similarly situated; PAINTERS DISTRICT COUNCIL NO. 30 HEALTH &
WELFARE FUND, individually and on behalf of all others similarly
situated; TEAMSTERS LOCAL 237 WELFARE BENEFITS FUND,
individually and on behalf of all others similarly situated;
LABORERS INTERNATIONAL UNION OF NORTH AMERICA LOCAL 35
HEALTH CARE FUND, on behalf of itself and all others similarly
situated; ALLIED SERVICES DIVISION WELFARE FUND, on behalf of
itself and all others similarly situated; WALGREEN CO.;
THE KROGER CO.; SAFEWAY, INC.; ALBERTSON'S, LLC;
HEB GROCERY COMPANY L.P.,
 Plaintiffs,

v.

WARNER CHILCOTT COMPANY, LLC; WARNER CHILCOTT PUBLIC LIMITED
COMPANY; WARNER CHILCOTT HOLDINGS COMPANY III, LTD.;
WARNER CHILCOTT CORPORATION, LLC, f/k/a Warner Chilcott
Company, Inc.; WARNER CHILCOTT (US), LLC; WARNER CHILCOTT SALES
(US), LLC; WARNER CHILCOTT LABORATORIES IRELAND LIMITED;
WARNER CHILCOTT COMPANY; ACTAVIS, INC., f/k/a WATSON
PHARMACEUTICALS, INC.; WATSON LABORATORIES, INC.; LUPIN LTD.;
LUPIN PHARMACEUTICALS, INC.,

Defendants, Appellees.

APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND

[Hon. William E. Smith, U.S. District Judge]

Before

Torruella, Lynch, and Thompson,
Circuit Judges.

Thomas M. Sobol, with whom Kristen A. Johnson, Hagens Berman
Sobol Shapiro, LLP, Joseph H. Meltzer, Terence S. Ziegler, Kessler
Topaz Meltzer & Check, LLP, David F. Sorensen, Michael Kane, Berger
& Montague, PC, Peter R. Kohn, Neill W. Clark, and Faruqi & Faruqi,
LLP, were on brief, for Direct-Purchasers' appellants.
Mark S. Hegedus, Attorney, Office of the General Counsel,
Federal Trade Commission, with whom Jonathan E. Nuechterlein,
General Counsel, Joel Marcus, Director of Litigation, Deborah L.
Feinstein, Director, Stephen Weissman, Deputy Director, Markus H.
Meier, Assistant Director, Bradley S. Albert, Deputy Assistant
Director, and Jamie R. Towey, Attorney, Bureau of Competition,
were on brief, of the Federal Trade Commission as amicus curiae in
support of appellants.
Steve D. Shadowen, Interim Co-Lead Counsel, with whom
Elizabeth Arthur, Matthew C. Weiner, Hilliard & Shadowen LLP,
Donald A. Migliori, Michael M. Buchman, John A. Ioannou, Motley
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Rice LLC, J. Douglas Richards, Sharon K. Robertson, Cohen Milstein
Sellers & Toll PLLC, Marvin A. Miller, Lori A. Fanning and Miller
Law LLC, were on brief, for End-Payors' appellants.
Robert A. Milne, with whom Jack E. Pace III, Alison Hanstead,
J. Mark Gidley, Peter J. Carney, White & Case LLP, John A.
Tarantino, Nicole J. Benjamin and Adler Pollock & Sheehan P.C.,
were on brief, for appellees Warner companies.
Leiv Blad, Jr., with whom Zarema A. Jaramillo and Morgan,
Lewis & Bockius LLP, were on brief, for appellees Lupin Limited
and Lupin Pharmaceuticals, Inc.
Scott E. Perwin, Lauren C. Ravkind, Anna T. Neill, Kenny
Nachwalter P.A., Paul J. Skiermont, Skiermont Puckett LLP,
S. Michael Levin, Barry L. Refsin, Monica L. Rebuck and Hangley
Aronchick Segal Pudlin & Schiller, on amicus brief of Walgreen
Co., The Kroger Co., Safeway, Inc., Albertson's LLC, HEB Grocery
Company, LP, Rite Aid Corporation and CVS Pharmacy, Inc.
Kenneth A. Wexler and Wexler Wallace LLP, on amicus brief on
behalf of 70 Law, Economics, and Business Professors and the
American Antitrust Institute.
Janet T. Mills, Attorney General of Maine, on amicus brief of
the States of Maine, California, Alaska, Colorado, Connecticut,
Delaware, District of Columbia, Hawaii, Idaho, Illinois, Iowa,
Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan
Minnesota, Mississippi, Nebraska, New Hampshire, New Mexico,
Oregon, Rhode Island, Tennessee, Texas, Utah, Vermont, and
Washington.
Daniel S. Francis, D. Bruce Hoffman, Hunton & Williams LLP,
Linda E. Kelly, Quentin Riegel, Manufacturers' Center for Legal
Action, on amicus brief of National Association of Manufacturers.
Richard A. Samp, Mark S. Chenoweth, and Washington Legal
Foundation, on amicus brief of Washington Legal Foundation.
Christopher T. Holding, William M. Jay, Brian T. Burgess, and
Goodwin Procter LLP, on amicus brief of Generic Pharmaceutical
Association.
Andrew Lazerow, Ashley Bass, Stephen Bartenstein and
Covington & Burling LLP, on amicus brief of Pharmaceutical Research
and Manufacturers of America.
Burt M. Rublin, Stephen J. Kastenberg, Jessica M. Anthony,
Barbara A. Schwartz and Ballard Spahr LLP, on amicus brief of
Antitrust Economists.
David A. Balto, James J. Kovacs and Law Offices of David A.
Balto, on amicus brief of Consumer Action, AARP, U.S. Public
Interest and Research Group, Public Citizen, Families USA, and
Consumers Union.

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February 22, 2016

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 TORRUELLA, Circuit Judge. This appeal arises from

several pharmaceutical antitrust actions that were consolidated

and transferred to the United States District Court for the

District of Rhode Island by the United States Judicial Panel on

Multidistrict Litigation.

Defendant Warner Chilcott ("Warner") is a brand-name

drug manufacturer that owns the patent covering the oral

contraceptive Loestrin 24 Fe ("Loestrin 24"). After defendant

Watson Pharmaceuticals, Inc. ("Watson") notified Warner that it

would seek to introduce a generic version of Loestrin 24, Warner

sued Watson for patent infringement. The parties settled on

conditions that Watson delay entry of its generic version of

Loestrin 24 and, in exchange, Watson entered into favorable

promotional deals with Warner and received promises that Warner

would not introduce its own generic version of Loestrin 24, among

other things. Shortly thereafter, defendant Lupin

Pharmaceuticals, Inc. ("Lupin") announced that it would introduce

a generic version of Loestrin 24. Warner brought a patent

infringement suit against Lupin. Again, the parties settled on

terms that Lupin wait to introduce its generic Loestrin 24 in

exchange for attorneys' fees and Warner's agreement to enter into

favorable side deals with Lupin.

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 Two putative classes of plaintiffs -- the Direct

Purchaser Plaintiffs ("DPPs"), a group comprised of corporate

entities that purchased Loestrin 24 directly from Warner, and End

Payor Plaintiffs ("EPPs"), which consist of health and welfare

benefit plans that have indirectly purchased, paid for, and

provided reimbursement for their members' purchase of Loestrin 24,

and individuals who purchased or paid for some or all of the

purchase price of Loestrin 24 -- subsequently brought antitrust

claims that the settlement agreements were violations of § 1 of

the Sherman Act, 15 U.S.C. § 1.1 They contend that these agreements

constitute illegal restraints on trade under FTC v. Actavis, ___

U.S. ___, 133 S. Ct. 2223 (2013), which subjected certain patent

settlement agreements between generic drug and brand-name drug

manufacturers to antitrust scrutiny where they involve "reverse

payments." As described in more detail herein, a reverse payment

1 Section 1 of the Sherman Act provides:

Every contract, combination in the form of trust or
otherwise, or conspiracy, in restraint of trade or
commerce among the several States, or with foreign
nations, is declared to be illegal. Every person who
shall make any contract or engage in any combination or
conspiracy hereby declared to be illegal shall be deemed
guilty of a felony, and, on conviction thereof, shall be
punished by fine not exceeding $100,000,000 if a
corporation, or, if any person, $1,000,000, or by
imprisonment not exceeding 10 years, or by both said
punishments, in the discretion of the court.

15 U.S.C. § 1.
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typically arises where a brand-name drug manufacturer pays the

generic manufacturer to delay entry of its generic equivalent,

thereby protecting the brand's market from generic competition.

Specifically, this antitrust case queries whether,

following Actavis, such settlement agreements are subject to

federal antitrust scrutiny where they do not involve reverse

payments in pure cash form. The district court found that Actavis

only applied to monetary reverse payments and dismissed on the

basis that the EPPs and DPPs had alleged the existence of non-cash

reverse payments only. Because we disagree with the district

court's limited reading of Actavis, we vacate and remand. We begin

with the relevant statutory and legal background, which provides

the framework for understanding the facts in this appeal.

I. Regulatory Background

The Drug Price Competition and Patent Term Restoration

Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585, commonly known as

the Hatch-Waxman Act, stipulates the process by which

pharmaceutical firms may gain approval from the Food and Drug

Administration ("FDA") to bring medications to the public

marketplace. The Supreme Court in Actavis identified "four key

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features of the relevant drug-regulatory framework" under the

Hatch-Waxman Act. 133 S. Ct. 2227-29.

First, to market a new prescription drug, a brand-name

drug manufacturer must submit a New Drug Application ("NDA") to

the FDA and undergo a laborious and expensive approval process.

21 U.S.C. § 355(b)(1); see Actavis, 133 S. Ct. at 2228. Among

other things, the NDA must include "the patent number and the

expiration date of any patent which claims the drug . . . or which

claims a method of using such drug." 21 U.S.C. § 355(b)(1). Upon

receiving FDA approval, the brand manufacturer must publish a

description of any patents associated with that drug in the

Approved Drug Products with Therapeutic Equivalence Evaluations,

commonly known as the Orange Book. See Caraco Pharm. Labs., Ltd.

V. Novo Nordisk A/S, ___ U.S. ___, 132 S. Ct. 1670, 1676 (2012).

Second, the Hatch-Waxman Act promotes the availability

of cheaper generic alternatives by allowing generic drug

manufacturers to bypass certain aspects of the NDA process.

Instead of filing an NDA, a generic manufacturer may file a less

cumbersome Abbreviated New Drug Application ("ANDA") "specifying

that the generic has the 'same active ingredients as,' and is

'biologically equivalent' to, the already-approved brand-name

drug." Actavis, 133 S. Ct. at 2228 (quoting Caraco Pharm. Labs.,

Ltd., 132 S. Ct. at 1676); 21 U.S.C. § 355(j)(2). But, "[b]ecause

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the FDA cannot authorize a generic drug that would infringe a

patent, the timing of an ANDA's approval depends on the scope and

duration of the patents covering the brand-name drug." Caraco

Pharm. Labs., Ltd., 132 S. Ct. at 1676.

Third, the Hatch-Waxman Act establishes procedures for

resolving patent disputes between brand and generic drug

manufacturers. 21 U.S.C. § 355(j)(2)(A)(vii); Actavis, 133 S. Ct.

at 2228. When seeking FDA approval, the generic manufacturer must

certify that it will not infringe the brand manufacturer's patents.

21 U.S.C. § 355(j)(2)(A)(vii); Actavis, 133 S. Ct. at 2228. It

can make this certification in one of four ways:

It can certify that the brand-name manufacturer has
not listed any relevant patents. It can certify that
any relevant patents have expired. It can request
approval to market beginning when any still-in-force
patents expire. Or, it can certify that any listed,
relevant patent "is invalid or will not be infringed
by the manufacture, use, or sale" of the drug
described in the [ANDA].

Actavis, 133 S. Ct. at 2228 (quoting 21 U.S.C. § 355(j)(2)(A)

(vii)(IV)).

The fourth alternative, also known as the Paragraph IV

route, "counts as patent infringement and often 'means provoking

litigation'" by the brand manufacturer. Id. (citation omitted)

(quoting Caraco Pharm. Labs., Ltd., 132 S. Ct. at 1677). Should

the brand manufacturer bring a patent suit within forty-five days

of the generic manufacturer making a Paragraph IV certification,

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the FDA may not approve the generic manufacturer's ANDA for a

thirty-month period. 21 U.S.C. § 355(j)(5)(B)(iii); Actavis, 133

S. Ct. at 2228. Paragraph IV litigation between generic and brand-

name drug manufacturers is particularly relevant here as it has

led to the settlement arrangements identified in Actavis.

Fourth, the Hatch-Waxman Act provides incentives for the

first generic manufacturer to file an ANDA through the Paragraph

IV route: the generic will receive a 180-day period of exclusivity

during which "no other generic can compete with the brand-name

drug." Actavis, 133 S. Ct. at 2229; 21 U.S.C. § 355(j)(5)(B)(iv).

This exclusivity period is potentially worth hundreds of millions

of dollars to the first-filing generic manufacturer. See Actavis,

133 S. Ct. at 2229.2 That said, the generic manufacturer may still

face competition from a generic version of the drug produced by

the brand manufacturer, also known as an authorized generic ("AG"),

at any time, including during the exclusivity period. See Teva

Pharm. Indus. Ltd. v. Crawford, 410 F.3d 51, 54-55 (D.C. Cir. 2005)

(citing 21 U.S.C. § 355(j)(5)(B)(iv)).

II. Actavis

We turn to Actavis, where the Supreme Court analyzed

settlement agreements arising from Paragraph IV litigation with

2 This 180-day exclusivity period can be forfeited as provided
under the Hatch-Waxman Act. 21 U.S.C. § 355(j)(5)(D).
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terms requiring "(1) Company B, the claimed infringer, not to

produce the patented product until the patent's term expires, and

(2) Company A, the patentee, to pay B many millions of dollars."

Actavis, 133 S. Ct. at 2227. These types of settlements led to

concerns that a brand manufacturer may be paying the generic

manufacturer to abandon its patent challenge, thereby insulating

the brand's market from competition and preventing consumers from

accessing a more affordable generic version of the brand-name drug.

The Court described this arrangement as a "reverse payment,"

explaining that "the basic question here is whether such an

agreement can sometimes unreasonably diminish competition in

violation of the antitrust laws." Id.

The Supreme Court answered in the affirmative. It

rejected the argument that a settlement involving reverse payments

is immune from antitrust scrutiny so long as any "anticompetitive

effects [of the settlement] fall within the scope of the

exclusionary potential of the patent," otherwise known as the

"scope of the patent" test. Id. at 2230 (quoting FTC v. Watson

Pharm., Inc., 677 F.3d 1298, 1312 (11th Cir. 2012)).3 The Court

3 Before Actavis was decided, the circuits were split between the
"scope of the patent test," see In re Ciprofloxacin Hydrochloride
Antitrust Litig., 544 F.3d 1323, 1332-36 (Fed. Cir. 2008),
abrogated by Actavis, 133 S. Ct. 2223; In re Tamoxifen Citrate
Antitrust Litig., 466 F.3d 187, 212-13 (2d Cir. 2006), abrogated
by Actavis, 133 S. Ct. 2223, and the "quick look" test, under which
reverse payments were considered "prima facie evidence of an
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reasoned that Paragraph IV litigation does not begin with the

baseline assumption that a patent is valid because "[t]he paragraph

IV litigation . . . put[s] the patent's validity at issue, as well

as its actual preclusive scope." Id. at 2231.

The Supreme Court acknowledged the "general legal

policy" in favor of settlements,4 but determined that "five sets

of considerations" weighed in favor of subjecting reverse payment

settlements to antitrust scrutiny. Id. at 2234-37. Specifically,

the Court explained:

[1] [A] reverse payment, where large and unjustified,
can bring with it the risk of significant
anticompetitive effects; [2] one who makes such a
payment may be unable to explain and to justify it;
[3] such a firm or individual may well possess market
power derived from the patent; [4] a court, by
examining the size of the payment, may well be able
to assess its likely anticompetitive effects along
with its potential justifications without litigating
the validity of the patent; and [5] parties may well
find ways to settle patent disputes without the use
of reverse payments.

unreasonable restraint on trade," In re K-Dur Antitrust Litig.,
686 F.3d 197, 218 (3d Cir. 2012), vacated, Upsher Smith Labs.,
Inc. v. La. Wholesale Drug Co., Inc., 133 S. Ct. 2849 (2013).

4 The Court noted that it did not intend to disturb commonplace
settlement forms. Whereas in a traditional settlement "a party
with a claim (or counterclaim) for damages receives a sum equal to
or less than the value of its claim," in a reverse payment
settlement, "a party with no claim for damages (something that is
usually true of a paragraph IV litigation defendant) walks away
with money simply so it will stay away from the patentee's market."
Actavis, 133 S. Ct. at 2233.
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Id. at 2237. While the Supreme Court declined to adopt the Federal

Trade Commission's ("FTC") suggestion that reverse payments be

considered "presumptively unlawful," it determined that the

potential anticompetitive effects of a reverse payment are subject

to the rule of reason test. The "rule of reason" is a means of

evaluating a restraint on trade and determining "whether under all

the circumstances of the case the restrictive practice imposes an

unreasonable restraint on competition." Arizona v. Maricopa Cty.

Med. Soc'y, 457 U.S. 332, 343-44 (1982). To satisfy the rule of

reason test, the plaintiff must demonstrate "that the alleged

agreement involved the exercise of power in a relevant economic

market, that this exercise had anti-competitive consequences, and

that those detriments outweighed efficiencies or other economic

benefits." Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield

of R.I., 373 F.3d 57, 61 (1st Cir. 2004); accord Sterling Merch.,

Inc. v. Nestlé, S.A., 656 F.3d 112, 123 (1st Cir. 2011).

Nevertheless, the Supreme Court acknowledged that

Actavis left many questions unanswered as to how these cases would

be litigated and "le[ft] to the lower courts the structuring of

the present rule-of-reason antitrust litigation." Actavis, 133 S.

Ct. at 2238.

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 III. Facts

"In reviewing the grant of a motion to dismiss, we

recount the facts as alleged in the operative complaint[s]." Ruivo

v. Wells Fargo Bank, N.A., 766 F.3d 87, 88 (1st Cir. 2014). This

appeal involves two operative complaints that allege substantially

the same facts, filed by the EPPs and DPPs, respectively.

Loestrin 24 contains the active ingredients

norethindrone acetate and ethinyl estradiol, both of which the FDA

has approved as oral contraceptives since the 1970s. Previous

versions of Loestrin, including Loestrin 21 and Loestrin 1/20,

contain twenty-one tablets taken on a daily basis. The patient

would then take a week of placebo pills or skip tablets for a week,

depending on the version of Loestrin.

Studies conducted in the 1990s examined whether taking

Loestrin tablets for a longer duration than the twenty-one day

period decreased the incidence of intermenstrual bleeding, or

"spotting," a common side-effect of oral contraceptives. The

studies yielded inconsistent results as to whether taking Loestrin

tablets for longer periods actually reduced intermenstrual

bleeding. Nevertheless, U.S. Patent No. 5,552,394 (the "'394

Patent"), entitled "Low Dose Oral Contraceptives with Less

Breakthrough Bleeding and Sustained Efficacy," was granted for "a

method of female contraception characterized by a reduced

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incidence of breakthrough bleeding by administering a combination

of estrogen and progestin for 23-25 consecutive days of a 28 day

cycle."

Defendant Warner5 currently owns the '394 Patent and, on

April 15, 2005, submitted an NDA for approval to market the dosing

regimen later known as Loestrin 24. On February 17, 2006, the FDA

approved Loestrin 24 and the '394 Patent was listed in the Orange

Book as covering Loestrin 24. As suggested by the '394 Patent,

Loestrin 24 purports to reduce the incidence of intermenstrual

bleeding by having the patient take the pills for twenty-four, as

opposed to twenty-one, consecutive days.

A. Watson Litigation and Settlement

Only several months after the FDA approved Loestrin 24,

on June 19, 2006, defendant Watson sent Warner a notice letter

that it had filed an ANDA to market a generic of Loestrin 24. The

notice letter contained a Paragraph IV certification that the

commercial manufacture, use, or sale of Watson's generic Loestrin

24 would not infringe any valid claim of the '394 Patent.

Predictably, Warner filed suit against Watson, alleging that

5 Actavis acquired Warner in October 2013. In addition, Watson
acquired Actavis in October 2012. Press Release, Watson Completes
Actavis Acquisition, Allergan (Oct. 31, 2012). To avoid confusion
with the Supreme Court case of the same name, we refer to the
defendants as Warner and Watson, respectively.

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Watson's generic product would infringe the '394 Patent.6 By doing

so, Warner triggered the thirty-month stay of FDA approval of

Watson's ANDA for generic Loestrin 24. The stay was scheduled to

expire in January 2009.

In January 2009, just before the expiration of the stay,

Watson and Warner entered into a stipulation of dismissal and

Exclusion Payment Agreement. Under the agreement, Watson agreed

that it would delay selling its Loestrin 24 generic until the

earliest of the following: (i) January 22, 2014; (ii) 180 days

before Warner gave a third party the right to market a Loestrin 24

generic in the United States; (iii) the date another version of a

Loestrin 24 generic entered the market; or (iv) the date on which

a third party obtained a final, non-appealable judicial order that

the '394 patent is invalid, unenforceable, or not infringed by the

third party's generic Loestrin 24. In exchange, Warner agreed to

several provisions:

(1) Warner agreed not to market, supply, or license an
AG version of Loestrin 24 during Watson's first 180
days of marketing, otherwise known as a "no-AG
agreement."
(2) Warner granted Watson a "non-exclusive, fully paid,
worldwide, royalty-free irrevocable license" to
market Loestrin 24 as of January 22, 2014.

6 In response, Watson challenged the validity and enforceability
of the '394 Patent based, in part, on the inconsistent studies
regarding Loestrin 24's ineffectiveness in combatting
intermenstrual bleeding. Those arguments need not be repeated
here, as "it is normally not necessary to litigate patent validity
to answer the antitrust question." Actavis, 133 S. Ct. at 2236.
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 (3) Warner would pay Watson annual fees and a
percentage of net sales in connection with Watson's
co-promotion of Femring, a Warner hormone therapy
product, beginning in 2009.
(4) Warner gave Watson the exclusive right to earn
brand sales of a Warner oral contraceptive in late-
stage development at the time of the agreement, now
known as Generess Fe.
(5) Warner would not grant a license to any other
manufacturer to produce a generic version of
Loestrin 24 until at least 180 days after Watson
entered the market.7
(6) Warner agreed to permit Watson to enter the market
before January 22, 2014, should another
manufacturer enter the market with a generic
Loestrin 24 before Watson. This "acceleration
clause" allegedly was intended to deter other
generic manufacturers from entering the marketplace
before Watson.8

B. Lupin Litigation and Settlement

Six months after the announcement of Warner and Watson's

agreement, on July 30, 2009, defendant Lupin9 notified Warner that

it had filed an ANDA to market a generic version of Loestrin 24.

The notice letter contained a Paragraph IV certification. As

expected, in September 2009, Warner sued Lupin, alleging

infringement of the '394 Patent. Again, by virtue of Warner's

7 Watson had otherwise forfeited its entitlement to a 180-day
exclusivity period under the Hatch-Waxman Act because it had not
obtained tentative FDA approval to market its generic Loestrin 24
within thirty months of submitting its ANDA.
8 Only the EPPs allege that the acceleration clause constitutes a
reverse payment under Actavis.
9 The EPPs, but not the DPPs, list Lupin as a defendant.
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filing suit within forty-five days, the FDA was prevented from

approving the Lupin ANDA for thirty months.

Before the close of discovery, in October 2010, Warner

entered into a non-competition agreement with Lupin and dismissed

the suit. Under the agreement, Lupin forfeited its challenge to

the '394 Patent and agreed to delay entry of its generic Loestrin

24 until July 22, 2014, the month that the '394 Patent was set to

expire and six months after Watson was scheduled to enter the

market with its Loestrin 24 generic. In exchange, Warner agreed

to the following provisions:

(1) Warner granted Lupin a non-exclusive license as to
Femcon Fe, another Warner branded oral
contraceptive, which allowed Lupin to market an AG
of Femcon Fe in the United States the earlier of
(i) 180 days after Teva Pharmaceutical Industries,
Ltd. (the Femcon Fe first filer) entered the market
with its Femcon Fe generic, or (ii) January 1, 2013.
(2) Warner gave Lupin the right to purchase and sell in
the United States a generic version of Asacol
400mg, a branded medication for inflammatory bowel
disease, to be supplied by Warner, if a generic
Asacol 400mg was launched by another manufacturer
in the United States.
(3) Warner paid Lupin an undisclosed amount toward
attorney's fees.10

10 The DPPs also allege that, six months after the announcement of
the Warner-Lupin agreement, in April 2011, Mylan Pharmaceuticals
("Mylan") sent Warner a notice containing a Paragraph IV
certification announcing that it had filed an ANDA to market a
generic Loestrin 24. In June 2011, Warner sued Mylan for
infringement of the '394 Patent. In July 2013, before a bench
trial was scheduled to begin, Warner entered a settlement and
license agreement with Mylan and the case was dismissed. Under
the agreement, Mylan agreed to drop its challenge to the '394
Patent and delay entry of its generic Loestrin 24 until July 22,
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 IV. Procedural Background

In their complaint, the DPPs allege that Warner and

Watson agreed to keep Watson's generic Loestrin 24 off of the

market until January 22, 2014, in exchange for payments that Warner

made to Watson when, absent the agreement, Watson could have

introduced a generic Loestrin 24 as early as 2009. The DPPs

contend that this anticompetitive conduct insulated Loestrin 24

from generic competition, which would typically be priced far below

the brand and eventually lead to reduced brand prices. In this

way, Warner and Watson's conduct allegedly caused antitrust harm

by subjecting the DPPs to artificially inflated prices.

The EPPs allege violations of § 1 of the Sherman Act as

to both the Warner-Watson and Warner-Lupin agreements. They

contend that the agreements required that Warner make payments to

Watson and Lupin in exchange for Watson's and Lupin's promise not

to market their versions of generic Loestrin 24 until January 22,

2014, and July 22, 2014, respectively. In addition, the EPPs bring

state claims for unjust enrichment and allege that the Warner-

2014, again, the month that the '394 Patent was scheduled to
expire. The DPPs do not detail the specific provisions of the
agreement, nor do they allege that the Mylan agreement gives rise
to independent antitrust claims.
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Watson and Warner-Lupin agreements constituted unlawful restraints

of trade in violation of various state antitrust laws.

The defendants filed two motions to dismiss, one as to

the DPP complaint and the other as to the EPP complaint, under

Federal Rules of Civil Procedure 12(b)(6) and 12(c). The

defendants contended that Actavis was limited to reverse payments

in cash. Nevertheless, they argued that the district court need

not reach this question, as neither the DPPs nor the EPPs had

plausibly pled the existence of a large and unjustified reverse

payment under the pleading standards announced in Bell Atl. Corp.

v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S.

662 (2009). The defendants also asserted that the DPPs and EPPs

had failed to allege monopoly power in a defined antitrust market

as required under the rule of reason test and that their actions

were barred on statute of limitations grounds.11

The district court granted the motions to dismiss in a

single opinion and order on the basis that Actavis was limited to

reverse payments in pure cash form. In re Loestrin 24 Fe Antitrust

Litig., 45 F. Supp. 3d 180 (D.R.I. 2014) [In re Loestrin].

Scouring the language of Actavis, the district court noted that

"[t]he discussion of patent settlements in Actavis fixates on the

11 In addition, the defendants provided independent grounds for
dismissing the state antitrust and unjust enrichment claims, none
of which are relevant here.
-20-
one form of consideration that was at issue in that case: cash."

Id. at 189. The district court also took into account the five

considerations contemplated by the Supreme Court in its

determination that subjecting reverse payments to antitrust

scrutiny outweighed the benefits of settlement. In the district

court's view, these considerations "guide the inquiry as to whether

a settlement payment satisfies the rule of reason," and "require[],

on the part of the plaintiff, and ultimately the reviewing court

(or the jury), an ability to assess or calculate the true value of

the payment made by the patentee to the generic competitor." Id.

at 190. Whereas a court can measure the value of a cash settlement,

"a non-cash settlement, particularly one that is multifaceted and

complex . . . , is almost impossible to measure against these five

factors." Id. at 191. In addition, the district court noted that

"a cautious approach" was warranted as "Actavis marked a dramatic

departure from the approach of the courts of appeal, and an

important shift in the common law." Id. at 192.

Nevertheless, the district court candidly conceded that

it had significant reservations about its holding: if antitrust

scrutiny is limited to reverse payments in cash, "non-cash pay for

delay arrangements are likely to evade Sherman Act scrutiny so

long as pharmaceutical companies take the obvious cue to structure

their settlements in ways that avoid cash payments." Id. at 193.

-21-
The district court noted that "the Plaintiffs have asserted, in

two robust complaints, facts demonstrating illegal contracts or

combinations in restraint of trade undertaken by the Defendants."

Id. However, because the district court dismissed the case on the

basis that the reverse payments were not in cash form, it did not

address the subsequent question of whether the individual

provisions of the settlement agreements -- including the no-AG

agreement, the acceleration clause, and the various side deals --

would have been adequately alleged as unlawful reverse payments

were Actavis to extend to non-cash payments.

The district court entered final judgment as to the DPPs'

claim under Rule 58 of the Federal Rules of Civil Procedure, noting

that their case was "immediately appealable" as their complaint

has been dismissed in its entirety. The district court entered

final judgment as to the EPPs' federal antitrust claims under Rule

54(b) of the Federal Rules of Civil Procedure and stayed their

remaining claims. The DPPs and EPPs timely appealed the district

court's decision, and the parties now dispute whether the district

court erred in determining that Actavis was limited to cash and,

if so, whether the plaintiffs plausibly alleged that the no-AG

-22-
agreements, acceleration clause, and side deals constituted

unlawful reverse payments.

V. Analysis

A. Standard of Review

We review a dismissal under Rule 12(b)(6) de novo.

Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1, 7 (1st Cir. 2011).

"For the purposes of our review, we accept as true all well-pled

facts alleged in the complaint and draw all reasonable inferences

in [the plaintiffs'] favor." Evergreen Partnering Grp., Inc. v.

Pactiv Corp., 720 F.3d 33, 36 (1st Cir. 2013). "A motion for

judgment on the pleadings [under Rule 12(c)] is treated much like

a Rule 12(b)(6) motion to dismiss," with the court viewing "the

facts contained in the pleadings in the light most favorable to

the nonmovant and draw[ing] all reasonable inferences therefrom."

Pérez-Acevedo v. Rivero-Cubano, 520 F.3d 26, 29 (1st Cir. 2008)

(quoting R.G. Fin. Corp. v. Vergara-Núñez, 446 F.3d 178, 182 (1st

Cir. 2006)).

"To survive a motion to dismiss, a complaint must contain

sufficient factual matter, accepted as true, to 'state a claim to

relief that is plausible on its face.'" Iqbal, 556 U.S. at 678

(quoting Twombly, 550 U.S. at 570). The pleadings need not contain

"detailed factual allegations" but must provide "more than labels

and conclusions, and a formulaic recitation of the elements of the

-23-
cause of action will not do." Twombly, 550 U.S. at 555. Although

the pleading standards articulated in Twombly are now ubiquitous

in the legal world, it is important to note that Twombly addressed

the specific question of "what a plaintiff must plead in order to

state a claim under § 1 of the Sherman Act," id. at 554-55, and

this court has cautioned against converting Twombly's mandates

into a requirement that antitrust plaintiffs provide evidentiary

support or set forth other "plus factors" to demonstrate the

plausibility of their Sherman Act claims, Evergreen Partnering

Grp., 720 F.3d at 46-47.

B. Actavis and Non-Cash Payments

As the district court addressed only the question of

whether Actavis reached non-cash reverse payments, today we choose

to limit ourselves to that query as well. For the reasons

discussed herein, we conclude that the district court erred in

determining that non-monetary reverse payments do not fall under

Actavis's scope.

The district court reasoned that the reverse payments

alleged in Actavis involved only cash payments, but that is not

so: in Actavis, it was alleged that the reverse payments involved

side deals in which the generic manufacturers agreed to promote

the brand name drug at issue in exchange for multi-million dollar

payments from the brand manufacturer. 133 S. Ct. at 2229; Watson

-24-
Pharm., Inc., 677 F.3d at 1305 (describing the terms of the

settlement agreements). This fact alone demonstrates that the

Supreme Court recognized that a disguised above-market deal, in

which a brand manufacturer effectively overpays a generic

manufacturer for services rendered, may qualify as a reverse

payment subject to antitrust scrutiny and militates against

limiting the Supreme Court's decision to pure cash payments.

The district court also analyzed the language of

Actavis, noting that the Supreme Court was "fixated" on cash. But

the district court overstates its case. Indeed, the Court in

Actavis explained that, "in substance, the plaintiff agreed to pay

the defendants many millions of dollars to stay out of its market."

133 S. Ct. at 2231 (emphasis added). This language acknowledges

that antitrust scrutiny attaches not only to pure cash reverse

payments, but to other forms of reverse payment that induce the

generic to abandon a patent challenge, which unreasonably

eliminates competition at the expense of consumers. Moreover,

this approach is consistent with antitrust law, which has

consistently prioritized substance over form. See, e.g., Am.

Needle, Inc. v. Nat'l Football League, 560 U.S. 183, 191-92 (2010)

("'[W]e seek the central substance of the situation' and therefore

'we are moved by the identity of the persons who act, rather than

the label of their hats.'" (quoting United States v. Sealy, Inc.,

-25-
388 U.S. 350, 353 (1967))); Copperweld Corp. v. Indep. Tube Corp.,

467 U.S. 752, 760 (1984) ("[The Sherman Act] is aimed at substance

rather than form."); Podiatrist Ass'n v. La Cruz Azul de P.R.,

Inc., 332 F.3d 6, 14 (1st Cir. 2003) (describing the antitrust

inquiry as "a functional one"). As the district court itself

acknowledged, a narrow construction of Actavis will give drug

manufacturers carte blanche to negotiate anticompetitive

settlements so long as they involve non-cash reverse payments:

Many observers welcomed Actavis as a necessary step
in confronting the scourge of pay for delay agreements
that they contend benefit the pharmaceutical industry
at the expense of consumers. But, ultimately, Actavis
can only serve as the solution to anticompetitive pay
for delay arrangements insofar as it encompasses both
cash and these increasingly prevalent non-cash
settlements. Of course, it is of relatively little
import whether a payment for delay is made in the form
of cash or some other form of consideration.

In re Loestrin, 45 F. Supp. 3d at 194 (footnote and citation

omitted).

True, Actavis does contain references to money. See

Actavis, 133 S. Ct. at 2233 (describing reverse payment settlements

as an arrangement "in which A, the plaintiff, pays money to

defendant B purely so B will give up the patent fight"); id.

(explaining that, in reverse payment settlements, a party "walks

away with money simply so it will stay away from the patentee's

market"). But the key word used throughout the opinion is

"payment," which connotes a much broader category of consideration

-26-
than cash alone. Black's Law Dictionary (10th ed. 2014) (defining

"payment" as the "performance of an obligation by the delivery of

money or some other valuable thing accepted in partial or full

discharge of the obligation" and "the money or other valuable thing

so delivered in satisfaction of an obligation" (emphases added)).

As the Third Circuit observed,

[t]he thrust of the Court's reasoning is not that it
is problematic that money is used to effect an end to
a patent challenge, but rather that the patentee
leverages some part of its patent power . . . to cause
anticompetitive harm -- namely, elimination of the
risk of competition.

King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp., 791

F.3d 388, 406 (3d Cir. 2015); see also id. at 409 (holding, post-

Actavis, that a no-AG agreement "is subject to antitrust scrutiny

under the rule of reason").

Nor are we the first court to determine that Actavis

should reach non-monetary reverse payments. Of the many district

courts and the single court of appeals to have addressed this

question, the overwhelming majority have declined to limit Actavis

to cash payments. See King Drug Co. of Florence, Inc., 791 F.3d

at 403 ("We do not believe Actavis's holding can be limited to

reverse payments of cash."); In re Actos End Payor Antitrust

Litig., No. 13-cv-9244(RA), 2015 WL 5610752, at *13 (S.D.N.Y.

Sept. 22, 2015) ("This Court shares the majority view that

Actavis's holding is not limited to payments made in cash."); In

-27-
re Aggrenox Antitrust Litig., 94 F. Supp. 3d 224, 243 (D. Conn.

2015) ("A settlement agreement may be very simple or tremendously

complex, and it may involve all manner of consideration; and if,

when viewed holistically, it effects a large and unexplained net

transfer of value from the patent-holder to the alleged patent-

infringer, it may fairly be called a reverse-payment

settlement."); United Food & Commercial Workers v. Teikoku Pharma

USA, 74 F. Supp. 3d 1052, 1069-70 (N.D. Cal. 2014) (rejecting

theory that Actavis only applies to cash reverse payments as

"[t]here are many plausible methods by which plaintiffs may

calculate the value of non-monetary terms"); In re Effexor XR

Antitrust Litig., No. 11-5479(PGS)(LHG), 2014 WL 4988410, at *19

(D.N.J. Oct. 6, 2014) ("The common use of the term payment is

described as something given to discharge a debt or obligation and

does not require the payment to be in the form of money."); Time

Ins. Co. v. Astrazeneca AB, 52 F. Supp. 3d 705, 710 (E.D. Pa. 2014)

("In my opinion, reverse payments deemed anti-competitive pursuant

to Actavis may take forms other than cash payments."); In re

Lipitor Antitrust Litig., 46 F. Supp. 3d 523, 543 (D.N.J. 2014)

(finding that Actavis covers situations where "the non-monetary

payment [can] be converted to a reliable estimate of its monetary

value"); In re Niaspan Antitrust Litig., 42 F. Supp. 3d 735, 751

(E.D. Pa. 2014) (holding "that the term 'reverse payment' is not

-28-
limited to a cash payment"); In re Nexium (Esomeprazole) Antitrust

Litig., 968 F. Supp. 2d 367, 392 (D. Mass. 2013) ("This Court does

not see fit to read into the opinion a strict limitation of its

principles to monetary-based arrangements alone.").

To be sure, the district court was correct that the

language of Actavis emphasizes that the value of a reverse payment

is a key component in determining whether it is unlawful. In

discussing how to apply the rule of reason analysis to reverse

payments, the Supreme Court explained, "the likelihood of a reverse

payment bringing about anticompetitive effects depends upon its

size, its scale in relation to the payor's anticipated future

litigation costs, its independence from other services for which

it might represent payment, and the lack of any other convincing

justification." Actavis, 133 S. Ct. at 2237. Such language

emphasizes that the size of the reverse payment, particularly as

it relates to potential litigation expenses, is central to the

antitrust query and requires that the reviewing court or factfinder

assess the value of the payment.

Similarly, as the district court noted, the five

considerations set forth by the Supreme Court12 require that the

12 There is some dispute as to how the five considerations should
factor into antitrust litigation going forward. Whereas the
district court construed the five considerations as "guid[ing] the
inquiry as to whether a settlement payment satisfies the rule of
reason," In re Loestrin, 45 F. Supp. 3d at 190, the DPPs contend
-29-
court or factfinder measure the payment's size. The Supreme Court

stated that a reverse payment may be justified where it "reflects

traditional settlement considerations, such as avoided litigation

costs or fair value for services." Id. at 2236. And, for the

market power inquiry, the Court explained that "the size of the

payment from a branded drug manufacturer to a prospective generic

is itself a strong indicator of power." Id. (internal quotation

marks omitted). Again, both statements assume that the value of

the reverse payment is ascertainable.

On this basis, the district court determined that it was

"almost impossible" to measure non-cash settlements such as those

that these considerations were proffered only as justifications
for why subjecting reverse payments to antitrust scrutiny outweigh
the public policy in favor of settlements. We agree with the DPPs
that the five considerations should not overhaul the rule of
reason, nor should they create a new five-part framework in
antitrust cases.

We note, however, that there is overlap between the five
considerations and the preexisting elements of the rule of reason.
For example, the First Circuit's rule of reason analysis queries,
among other things, whether the "agreement involved the exercise
of power in a relevant economic market." Stop & Shop Supermarket
Co., 373 F.3d at 61. In that same vein, Actavis explains how to
evaluate the market power question: "the size of the payment from
a branded drug manufacturer to a prospective generic is itself a
strong indicator of power." Actavis, 133 S. Ct. at 2236 (internal
quotation marks omitted). Similarly, the First Circuit rule of
reason includes as an element the anticompetitive consequences of
the alleged agreement, and the first of the five considerations
articulated by the Supreme Court explains that a reverse payment
may have significant anticompetitive effects where it "amounts to
a purchase by the patentee of the exclusive right to sell its
product." Id. at 2234.
-30-
at issue here. In re Loestrin, 45 F. Supp. 3d at 191. Although

the value of non-cash reverse payments may be much more difficult

to compute than that of their cash counterparts, antitrust

litigation often requires an "elaborate inquiry into the

reasonableness of a challenged business practice" and, as a result,

is "extensive and complex." Maricopa Cty. Med. Soc'y, 457 U.S. at

343. In other words, antitrust litigation already requires courts

to make intricate and complex judgments about market practices.

We agree with those courts that, rather than rejecting

wholesale Actavis's applicability to non-cash payments, have

required that the plaintiffs plead information sufficient "to

estimate the value of the term, at least to the extent of

determining whether it is 'large' and 'unjustified.'" In re Actos

End Payor Antitrust Litig., 2015 WL 5610752, at *13. Consistent

with Twombly, which declined to "require heightened fact pleading

of specifics," Twombly, 550 U.S. at 570, we do not require that

the plaintiffs provide precise figures and calculations at the

pleading stage, In re Actos End Payor Antitrust Litig., 2015 WL

5610752, at *13. Requiring such a high burden would impose a

nearly insurmountable bar for plaintiffs at the pleading stage

because "very precise and particularized estimates of fair value

and anticipated litigation costs may require evidence in the

exclusive possession of the defendants, as well as expert

-31-
analysis." In re Aggrenox Antitrust Litig., 94 F. Supp. 3d at

244-45. Nevertheless, the plaintiffs must allege facts sufficient

to support the legal conclusion that the settlement at issue

involves a large and unjustified reverse payment under Actavis.

See In re Niaspan Antitrust Litig., 42 F. Supp. 3d at 753

(describing Twombly's applicability to the Actavis inquiry).

On appeal, the defendants do not strenuously argue that

Actavis should be limited to cash payments, instead focusing their

briefing on whether the plaintiffs adequately pled that the

provisions at issue in the Warner-Watson and Warner-Lupin

settlement agreements are unlawful reverse payments under Actavis.

As the district court did not address these issues, we remand for

the district court to evaluate these remaining questions in the

first instance. The Supreme Court acknowledged that Actavis had

opened the door to a new landscape of litigation and "le[ft] to

the lower courts the structuring of the present rule-of-reason

antitrust litigation." Actavis, 133 S. Ct. at 2238. At this

juncture, we feel that the most prudent course is to proceed one

step at a time, and we therefore leave for another day the question

of whether the EPPs and DPPs adequately alleged that the individual

-32-
provisions of the settlement agreements warranted antitrust

scrutiny as unlawful reverse payments.

VI. Conclusion

For the foregoing reasons, the judgment is vacated and

the case is remanded for further proceedings consistent with this

opinion. No costs are awarded.

Vacated and Remanded.

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