PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 18-2621
FEDERAL TRADE COMMISSION,
Appellant
v.
ABBVIE INC.; ABBOTT LABORATORIES; UNIMED
PHARMACEUTICALS, LLC; BESINS HEALTHCARE,
INC.; *TEVA PHARMACEUTICALS USA, INC.
(*Dismissed Pursuant to Court’s 3/12/19 Order.)
No. 18-2748
FEDERAL TRADE COMMISSION
v.
ABBVIE INC.; ABBOTT LABORATORIES; UNIMED
PHARMACEUTICALS, LLC; BESINS HEALTHCARE,
INC.; *TEVA PHARMACEUTICALS USA, INC.
Abbvie Inc.; Abbott Laboratories; Unimed
Pharmaceuticals, LLC,
Appellants
(*Dismissed Pursuant to Court’s 3/12/19 Order.)
No. 18-2758
FEDERAL TRADE COMMISSION
v.
ABBVIE INC.; ABBOTT LABORATORIES; UNIMED
PHARMACEUTICALS, LLC;
BESINS HEALTHCARE, INC.; *TEVA
PHARMACEUTICALS USA, INC.
Besins Healthcare, Inc.,
Appellant
(*Dismissed Pursuant to Court’s 3/12/19 Order.)
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2-14-cv-05151)
District Judge: Honorable Harvey Bartle, III
Argued on January 15, 2020
2
Before: HARDIMAN, PORTER and PHIPPS, Circuit Judges.
(Filed: September 30, 2020)
Mark S. Hegedus
Federal Trade Commission
MS-582
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
Matthew M. Hoffman [Argued]
Joel R. Marcus
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
Attorneys for Federal Trade Commission
Brittany Amadi
Catherine M.A. Carroll
Leon B. Greenfield
Seth P. Waxman [Argued]
WilmerHale
1875 Pennsylvania Avenue, N.W.
Washington, DC 20006
Elaine J. Goldenberg
Munger Tolles & Olson
601 Massachusetts Avenue, N.W.
Suite 500e
Washington, DC 20001
Adam R. Lawton
3
Stuart N. Senator
Jeffrey I. Weinberger
Munger Tolles & Olson
350 South Grand Avenue
50th Floor
Los Angeles, CA 90071
William F. Lee
WilmerHale
60 State Street
Boston, MA 02109
Paul H. Saint-Antoine
John S. Yi.
Faegre Drinker Biddle & Reath
One Logan Square
Suite 2000
Philadelphia, PA 19103
Attorneys for AbbVie Inc, Abbott Laboratories, and Unimed
Pharmaceuticals LLC
Melinda F. Levitt
Gregory E. Neppl [Argued]
Foley & Lardner
3000 K Street, N.W.
Suite 600
Washington, DC 20007
Paul H. Saint-Antoine
John S. Yi
Faegre Drinker Biddle & Reath
One Logan Square
4
Suite 2000
Philadelphia, PA 19103
Attorneys for Besins Healthcare, Inc.
William A. Rivera
AARP Foundation Litigation
B4-230
601 E Street, N.W.
Washington, DC 20049
Attorney for Amici AARP and AARP Foundation
Ilana H. Eisenstein
DLA Piper
1650 Market Street
One Liberty Place, Suite 5000
Philadelphia, PA 19103
Attorney for Amicus Chamber of Commerce of the United
States of America
Bradford J. Badke
Sidley Austin
787 Seventh Avenue
New York, NY 10019
Attorney for Amicus Amgen Inc
Andrew D. Lazerow
Covington & Burling
850 10th Street, N.W.
One City Center
5
Washington, DC 20001
Attorney for Amicus Pharmaceutical Research and
Manufacturers of America
Richard M. Brunell
Hilliard & Shadowen
1135 West 6th Street
Suite 125
Austin, TX 78703
Attorney for Amici American Antitrust Institute, Public
Citizen Inc, and Public Knowledge
OPINION OF THE COURT
HARDIMAN, Circuit Judge.
TABLE OF CONTENTS
I. FACTUAL BACKGROUND ........................................... 9
A. FDA Approval under the Hatch-Waxman Act ........... 9
B. Patent disputes under the Hatch-Waxman Act......... 11
C. Therapeutic equivalence ratings .............................. 12
D. Hypogonadism and testosterone
replacement therapies .............................................. 13
E. AndroGel ................................................................. 14
6
F. The ’894 patent’s prosecution history...................... 15
G. AndroGel’s competitors ........................................... 18
H. The lawsuits against Teva and Perrigo .................... 18
I. The settlements with Perrigo and Teva .................... 21
J. Teva and Perrigo’s generic versions of AndroGel ... 23
II. PROCEDURAL HISTORY ........................................ 24
III. JURISDICTION .......................................................... 26
IV. LIABILITY ................................................................. 35
A. The District Court erred by rejecting the
reverse-payment theory.. .......................................... 35
B. The District Court erred in concluding AbbVie and
Besins’s litigation against Teva was a sham; it did
not err in concluding the Perrigo litigation was a
sham. ........................................................................ 53
C. The District Court did not err in concluding
AbbVie and Besins had monopoly power in the
relevant market. ....................................................... 77
V. REMEDIES .................................................................... 83
A. The District Court erred in ordering disgorgement.. 83
B. The District Court did not abuse its discretion in
denying injunctive relief. ......................................... 93
C. Remand on the reverse-payment theory is not
futile. ........................................................................ 97
7
This appeal involves a patented drug called AndroGel.
A blockbuster testosterone replacement therapy that generated
billions of dollars in sales, AndroGel caught the attention of
the Federal Trade Commission. The FTC sued the owners of
an AndroGel patent—AbbVie, Inc., Abbott Laboratories,
Unimed Pharmaceuticals LLC, and Besins Healthcare, Inc.—
under Section 13(b) of the Federal Trade Commission Act in
the United States District Court for the Eastern District of
Pennsylvania. The FTC alleged that Defendants filed sham
patent infringement suits against Teva Pharmaceuticals USA,
Inc. and Perrigo Company, and that AbbVie, Abbott, and
Unimed entered into an anticompetitive reverse-payment
agreement with Teva. The FTC accused Defendants of trying
to monopolize and restrain trade over AndroGel.
The District Court dismissed the FTC’s claims to the
extent they relied on a reverse-payment theory but found
Defendants liable for monopolization on the sham-litigation
theory. The Court ordered Defendants to disgorge $448 million
in ill-gotten profits but denied the FTC’s request for an
injunction. The parties cross-appeal.
We hold the District Court erred by rejecting the
reverse-payment theory and in concluding Defendants’
litigation against Teva was a sham. The Court did not err,
however, in concluding the Perrigo litigation was a sham and
that Defendants had monopoly power in the relevant market.
Yet the FTC has not shown the monopolization entitles it to
any remedy. The Court did not abuse its discretion in denying
injunctive relief; and the Court erred by ordering disgorgement
because that remedy is unavailable under Section 13(b) of the
FTC Act. Accordingly, we will reinstate the FTC’s dismissed
claims and remand for further proceedings consistent with this
opinion. We will also affirm in part and reverse in part the
8
Court’s order adjudging Defendants liable for monopolization.
Finally, we will affirm the Court’s order denying injunctive
relief and reverse the Court’s order requiring Defendants to
disgorge $448 million.
I. FACTUAL BACKGROUND
A. FDA Approval under the Hatch-Waxman Act
The Food, Drug, and Cosmetic Act (the FDC Act), 21
U.S.C. § 301 et seq., empowers the Food and Drug
Administration (FDA) to regulate the manufacture and sale of
drugs in the United States. Before a pharmaceutical company
can market a drug, it must obtain FDA approval. Id. § 355(a).
Under the FDC Act, as amended by the Drug Price
Competition and Patent Term Restoration Act of 1984 (the
Hatch-Waxman Act), 21 U.S.C. § 355 and 35 U.S.C. § 271, a
company can apply for FDA approval in one of three ways:
1. Section 505(b)(1) New Drug Application (NDA). This is
a “full-length” application. FTC v. AbbVie Inc., 329 F.
Supp. 3d 98, 107 (E.D. Pa. 2018). The “gauntlet of
procedures” associated with it is “long, comprehensive,
and costly.” In re Wellbutrin XL Antitrust Litig. Indirect
Purchaser Class, 868 F.3d 132, 143 (3d Cir. 2017)
(citation omitted). It includes “full reports of
investigations” into whether the drug is safe and
effective, a “full list of . . . [the drug’s] components,” a
“full description of the methods used in . . . the
manufacture, processing, and packing” of the drug,
samples of the drug, and specimens of the labeling the
company proposes to use. 21 U.S.C. § 355(b)(1). A
company must also list any relevant patents. See
Wellbutrin, 868 F.3d at 144 (citation omitted). We refer
9
to drugs approved through this process as “brand-name”
drugs.
2. Section 505(j) Abbreviated New Drug Application
(ANDA). This streamlined application is appropriate for
a company seeking to market a generic version of a
brand-name drug. The company need not produce its
own safety and efficacy data. 21 U.S.C. §
355(j)(2)(A)(vi). But it must show that the generic drug
is “the same” as the brand-name drug in certain relevant
respects. Id. § 355(j)(2)(A). It also must “assure the
FDA that its proposed generic drug will not infringe the
brand’s patents.” Caraco Pharm. Labs., Ltd. v. Novo
Nordisk A/S, 566 U.S. 399, 406 (2012). It can do so by
certifying that the manufacture, use, or sale of the
generic will not infringe patents relating to the brand-
name drug, or that those patents are invalid. 21 U.S.C.
§ 355 (j)(2)(A)(vii)(IV). This certification is known as
a “paragraph IV notice.” AbbVie, 329 F. Supp. 3d at
108.
The first company to seek FDA approval in this
way enjoys “a period of 180 days of exclusivity,” during
which “no other generic can compete with the brand-
name drug.” FTC v. Actavis, Inc., 570 U.S. 136, 143–44
(2013) (citing 21 U.S.C. § 355 (j)(5)(B)(iv)). “[T]his
180-day period . . . can prove valuable, possibly worth
several hundred million dollars.” Id. at 144 (internal
quotation marks and citation omitted). One exception is
that during the 180-day exclusivity period, the brand-
name company can produce a generic version of its own
drug or license a third party to do so. See Mylan Pharm.,
Inc. v. FDA, 454 F.3d 270, 276–77 (4th Cir. 2006).
These “authorized generics” can decrease the value an
10
applicant receives from the 180-day exclusivity period
to the extent they share the generic drug market and
depress prices. See id. at 273.
3. Section 505(b)(2) New Drug Application (hybrid NDA).
This application is appropriate for a company seeking
to modify another company’s brand-name drug. For
example, a company might seek FDA approval of “a
new indication or new dosage form.” 21 C.F.R. §
314.54(a). This application is like an ANDA because
the company need not produce all safety and efficacy
data about the drug and because it must assure the FDA
that its generic drug will not infringe the brand’s
patents. See 21 U.S.C. § 355(b)(2)(A)(iv). But it differs
from an ANDA because the company must produce
some data, including whatever “information [is] needed
to support the modification(s).” 21 C.F.R. § 314.54(a).
The latter two pathways “speed the introduction of low-
cost generic drugs to market” and promote competition in the
pharmaceutical industry. Actavis, 570 U.S. at 142 (internal
citation omitted).
B. Patent disputes under the Hatch-Waxman Act
The Hatch-Waxman Act also has provisions that
encourage the quick resolution of patent disputes. See
Wellbutrin, 868 F.3d at 144. A paragraph IV notice
“automatically counts as patent infringement.” Id. (quoting
Actavis, 570 U.S. at 143 (citing 35 U.S.C. § 271(e)(2)(A))).
After receiving this notice, a patentee has 45 days to decide
whether to sue. 21 U.S.C. § 355(j)(5)(B)(iii).
11
To help a patentee make that decision, the company
seeking approval of a generic drug often allows the patentee’s
outside counsel to review the company’s application in secret.
If the patentee sues within the time limit, the FDA cannot
approve the company’s application for a generic drug until one
of three things happens: (1) a court holds that the patent is
invalid or has not been infringed; (2) the patent expires; or (3)
30 months elapse, as measured from the date the patentee
received the paragraph IV notice. 21 U.S.C. § 355(j)(5)(B)(iii).
The automatic, 30-month stay creates tension with the
Hatch-Waxman Act’s procompetitive goals. Simply by suing,
a patentee can delay the introduction of low-cost generic drugs
to market and impede competition in the pharmaceutical
industry. Cf. Actavis, 570 U.S. at 142.
C. Therapeutic equivalence ratings
After the FDA approves a company’s generic drug, the
company can seek a therapeutic equivalence (TE) rating.
“Products that are determined to be therapeutically equivalent
[to the brand] are assigned an ‘A’ or ‘AB’ rating. Generic
products for which therapeutic equivalence cannot be
determined are assigned a ‘B’ or ‘BX’ rating.” AbbVie, 329 F.
Supp. 3d at 107. Generic drug companies usually prefer A or
AB ratings because every state’s law “either permit[s] or
require[s] pharmacists to dispense a therapeutically equivalent,
lower-cost generic drug in place of a brand drug.” Mylan
Pharm. Inc. v. Warner Chilcott Pub. Ltd., 838 F.3d 421, 428
(3d Cir. 2016) (internal quotation marks and citations omitted).
12
D. Hypogonadism and testosterone replacement
therapies
Hypogonadism is a clinical syndrome resulting from
low testosterone in the human body. See AbbVie, 329 F. Supp.
3d at 108. It affects an estimated 2-6 percent of the adult male
population in the United States and causes “decreases in energy
and libido, erectile dysfunction, and changes in body
composition.” Id.
Doctors treat hypogonadism with testosterone
replacement therapies (TRTs). TRTs include injectables,
topical/transdermals (TTRTs), and other therapies. Companies
first marketed injectables in the 1950s. Because generic
injectables have been available for decades, they are the least
expensive. They involve dissolving testosterone in a liquid and
injecting it into the patient’s body every one to three weeks.
Some patients administer injections to themselves at home,
while others receive injections at their doctor’s office or a
specialized testosterone clinic. By contrast, TTRTs first
appeared in the 1990s and are more expensive. They deliver
testosterone to the patient’s body through a patch or gel applied
to the patient’s skin. Gels are applied daily.
TRTs have different benefits and drawbacks. Some
patients dislike injectables because the injection is painful, or
because the “peak in testosterone level” after the injection
causes “swings in mood, libido, and energy.” Id. at 109. Many
of these patients prefer TTRTs because they release
testosterone steadily. Other patients dislike TTRT gels.
Common complaints include skin irritation and the
inconvenience of having to apply the gel daily. And patients
sometimes transfer the testosterone gel to others inadvertently
through skin-to-skin contact. Finally, some patients dislike
13
TTRT patches, which can irritate the skin and are visible to
other people, depending on where the patch is applied.
E. AndroGel
In the 1990s, Laboratoires Besins International S.A.S.
(LBI)—a corporate affiliate of Besins’s parent company—
developed the TTRT gel that became AndroGel. In 1995, LBI
licensed to Unimed certain intellectual property relating to the
gel, and Unimed assumed responsibility for marketing the gel
in the United States. In exchange, Unimed agreed to pay LBI a
royalty on the gel’s net sales. Unimed secured FDA approval
for the gel in 2000. That same year, Unimed and Besins filed a
joint U.S. patent application, and, in 2003, U.S. Patent No.
6,503,894 (the ’894 patent) issued.
Today, Besins and AbbVie co-own the ’894 patent.
AbbVie acquired Unimed’s interest in the patent as follows: in
1999, Unimed was acquired by Solvay; in 2010, Solvay was
acquired by Abbott; in 2013, Abbott separated into two
companies—Abbott and AbbVie—with AbbVie assuming all
of Abbott’s propriety pharmaceutical business, including its
interest in AndroGel.
Solvay brought AndroGel to market in 2000. At the
time, AndroGel was available only in a sachet form at 1%
strength. From 2004-2013, Solvay and its successors marketed
AndroGel in a metered-dose pump form. And in 2011, Abbott
started marketing AndroGel at 1.62% strength. Sales of
AndroGel 1.62% grew more slowly than anticipated, but by
June 2012, they comprised most of AndroGel’s total sales.
AndroGel has been a huge commercial success. Its
annual net sales sometimes surpassed a billion dollars and
14
remained strong even after generic versions of AndroGel
entered the market in 2015. From 2009-2015, it generated a
high profit margin of about 65 percent.
F. The ’894 patent’s prosecution history
TTRT gels use “penetration enhancers” to accelerate the
delivery of testosterone through a patient’s skin. AndroGel’s
penetration enhancer is isopropyl myristate.
Unimed and Besins’s joint patent application was U.S.
Patent Application Serial No. 09/651,777. As originally
drafted, claim 1 of the patent application claimed all
penetration enhancers:
A pharmaceutical composition useful for the
percutaneous delivery of an active
pharmaceutical ingredient, comprising:
(a) a C1-C4 alcohol;
(b) a penetration enhancer;
(c) the active pharmaceutical ingredient; and
(d) water.
App. 909 (emphasis added). The penetration enhancers then in
existence numbered in the tens of millions.
In June 2001, the patent examiner rejected this claim as
obvious over two prior art references—Mak in view of Allen.
Mak disclosed the penetration enhancer oleic acid used in a
transdermal testosterone gel. Allen disclosed isopropyl
myristate, isopropyl palmitate, and three other penetration
15
enhancers used in a nitroglycerin cream. The examiner
explained that “since all composition components herein are
known to be useful for the percutaneous delivery of
pharmaceuticals, it is considered prima facie obvious to
combine them into a single composition useful for the very
same purpose.” App. 1014–16.
In October 2001, Unimed and Besins amended the
patent application’s claim 1 to recite at least one of 24
penetration enhancers, including isopropyl myristate and
isostearic acid. Isopropyl palmitate was not among the 24.
Unimed and Besins also added several new claims. Claim 47
recited “a penetration enhancer selected from the group
consisting of isopropyl myristate and lauryl alcohol.” App.
1022. And claims 61 and 62 recited only isopropyl myristate as
a penetration enhancer.
Unimed and Besins sought “reconsideration and
withdrawal of the [obviousness] rejections and allowance of
the[se] claims.” App. 1039. In support, they cited AndroGel’s
commercial success. See id.; see generally Graham v. John
Deere Co. of Kansas City, 383 U.S. 1, 17 (1966) (holding
commercial success is a “secondary consideration” suggesting
nonobviousness). They also argued “[t]he mere fact that
references can be combined or modified does not render the
resultant combination obvious unless the prior art also suggests
the desirability of the combination.” App. 1030–31 (citations
omitted). For three reasons, they said, the prior art did not
suggest combining Mak and Allen. First, Mak “[taught] away
from using the presently claimed penetration enhancers by
focusing on the superiority of oleic acid.” App. 1032. Second,
the claimed penetration enhancers had an “unexpected and
unique pharmacokinetic and phamacodynamic profile.” Id.
And third, “the prior art recognize[d] the chemical and
16
physiologic/functional differences of penetration enhancers,
including the differences between oleic acid and the claimed
enhancers, such as isopropyl myristate.” App. 1037–38.
Attorneys for Unimed and Besins then met with the
examiner for an interview. The examiner opined that “claims
61-62 are . . . allowable over the prior art.” App. 1084. She also
noted that the attorneys “argued claim 47 is novel [and]
nonobvious over the prior art because the prior art does not
teach the composition with particular concentrations [of
isopropyl myristate and lauryl alcohol].” Id.
In December 2001 and February 2002, Unimed and
Besins twice more amended the patent application. They
cancelled claims 1 and 62, amended claim 47 to cover only a
composition comprising isopropyl myristate, and modified the
concentration ranges for isopropyl myristate in claim 61. With
each amendment, they sought “reconsideration and withdrawal
of the [obviousness] rejections and allowance of the[se]
claims.” App. 1095, 1129.
The examiner issued a notice of allowability. She wrote
that “[t]he claimed pharmaceutical composition consisting
essentially of the particular ingredients herein in the specific
amounts, is not seen to be taught or fairly suggested by the
prior art.” App. 1152. She clarified that she considered the
amendments “all together,” and they sufficed to “remove the
prior art rejection . . . over [Mak in view of Allen].” Id.
In January 2003, the ’894 patent issued. It expired on
August 30, 2020.
17
G. AndroGel’s competitors
When Solvay brought AndroGel to market in 2000, its
only competitors were injectables and two TTRT patches (i.e.,
Testoderm and Androderm). Since then, companies have
marketed four other TTRT gels (i.e., Testim, Axiron, Fortesta,
and Vogelxo). Companies have also developed other TRTs,
including Striant (a buccal tablet applied twice daily to a
patient’s gums), Testopel (a pellet surgically inserted into a
patient’s body every three to six months), and Natesto (a nasal
spray administered three times a day).
H. The lawsuits against Teva and Perrigo
In December 2008, Perrigo filed two ANDAs for a
generic 1% testosterone gel in sachet and pump forms, and in
June 2009 it served paragraph IV notices on Unimed and
Besins. It asserted that because its gel used the penetration
enhancer isostearic acid instead of isopropyl myristate, the gel
would not literally infringe the ’894 patent. It also argued the
gel would not infringe the patent under the doctrine of
equivalents, which provides that “[t]he scope of a
patent . . . embraces all equivalents to the claims described.”
Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co. (“Festo
VIII”), 535 U.S. 722, 732 (2002). Perrigo explained the ’894
patent’s prosecution history would estop Unimed and Besins
from claiming equivalency between isostearic acid and
isopropyl myristate, because they originally claimed isostearic
acid before excluding it in response to a rejection. This
limitation on the doctrine of equivalents is known as
prosecution history estoppel. Id. at 733–34.
Solvay, Unimed, and Besins retained outside counsel to
review Perrigo’s ANDAs. In July 2009, Solvay and Unimed
18
issued a press release stating that they had carefully evaluated
the ANDAs and decided not to sue Perrigo, in part because
Perrigo’s gel “contains a different formulation than the
formulation protected by the AndroGel patent.” AbbVie, 329 F.
Supp. 3d at 111. Besins also decided not to sue.
That same year, the FDA learned that patients were
accidentally transferring TTRT gels to children through skin-
to-skin contact. AndroGel’s new owner Abbott petitioned the
FDA to require Perrigo to resubmit its 2009 ANDAs as hybrid
NDAs. See 21 C.F.R. § 10.30 (FDA citizen petition form). That
would require Perrigo to investigate whether isostearic acid
poses a higher risk of accidental transfer than isopropyl
myristate. Abbott also asked the FDA to require Perrigo to
serve new paragraph IV notices on Abbott and Besins, thereby
reopening the 45-day window for them to decide whether to
sue. The FDA granted Abbott’s petition in relevant part.
In January 2011, Teva filed a hybrid NDA for a generic
1% testosterone gel in sachet and pump forms, and in March
2011 it served paragraph IV notices on Abbott, Solvay,
Unimed, and Besins. Teva asserted its gel would not literally
infringe the ’894 patent because it used isopropyl palmitate
instead of isopropyl myristate. It also explained that the ’894
patent’s prosecution history would estop Abbott and Besins
from claiming infringement on the ground that isopropyl
palmitate is equivalent to isopropyl myristate. Abbott and
Besins retained outside counsel to review Teva’s hybrid NDA.
On April 29, 2011, Abbott, Unimed, and Besins sued
Teva for patent infringement in the United States District Court
for the District of Delaware. They argued that isopropyl
myristate and isopropyl palmitate were equivalent. The lawsuit
triggered the Hatch-Waxman Act’s automatic, 30-month stay
19
on FDA approval for Teva’s gel. Teva responded that
prosecution history estoppel applied because Unimed and
Besins’s October 2001 amendment—which narrowed the
application’s claim 1 from all penetration enhancers to a list of
24—surrendered isopropyl palmitate. Abbott, Unimed, and
Besins disagreed. They cited an exception to prosecution
history estoppel—known as “tangentiality”—that applies if
“the rationale underlying the amendment [bore] no more than
a tangential relation to the equivalent in question.” Festo VIII,
535 U.S. at 740. Abbott, Unimed, and Besins argued the
October 2001 amendment sought to overcome Mak’s use of
oleic acid and was thus tangential to isopropyl palmitate, which
Allen disclosed. The Court set trial for May 2012.
In July 2011, Perrigo filed a hybrid NDA for generic 1%
testosterone gel, and in September 2001, it served new
paragraph IV notices on Abbott, Unimed, and Besins. It again
asserted its gel would not infringe the ’894 patent. And it added
that “a lawsuit asserting the ’894 patent against Perrigo would
be objectively baseless and a sham, brought in bad faith for the
improper purpose of, inter alia, delaying Perrigo’s NDA
approval.” AbbVie, 329 F. Supp. 3d at 114. A bad faith motive
for suing would be “particularly apparent,” Perrigo said, in
light of Solvay’s July 2009 press release. Id. Abbott, Unimed,
and Besins retained outside counsel to review Perrigo’s hybrid
NDA.
In August 2011, Abbott petitioned the FDA not to grant
therapeutic equivalence ratings to hybrid NDAs referencing
AndroGel. Alternatively, it asked the FDA to assign such
products BX ratings.
On October 31, 2011, Abbott, Unimed, and Besins sued
Perrigo in the United States District Court for the District of
20
New Jersey. That lawsuit triggered the Hatch-Waxman Act’s
automatic, 30-month stay on FDA approval for Perrigo’s gel.
Four in-house patent attorneys in AbbVie’s intellectual
property group and AbbVie’s general counsel decided to sue
Teva and Perrigo. Those attorneys had “extensive experience
in patent law and with AbbVie.” See id. at 113. However, “[n]o
business persons at AbbVie were involved in the decision to
sue.” Id. As for Besins, its in-house counsel Thomas
MacAllister decided to sue. MacAllister is an experienced
intellectual property attorney and a former patent examiner.
I. The settlements with Perrigo and Teva
In December 2011, Abbott and Perrigo settled. They
agreed to dismiss all claims and counterclaims with prejudice;
Abbott agreed to pay Perrigo $2 million as reasonable litigation
expenses; and Abbott agreed to license Perrigo to market its
generic 1% testosterone gel on either January 1, 2015 or when
another generic version came to market, whichever was sooner.
(The last provision is known as an acceleration clause). Perrigo
unsuccessfully pushed for an earlier market entry date in
settlement negotiations. Its assistant general counsel Andrew
Solomon later said he predicted the acceleration clause would
provide Perrigo with an earlier entry date, because he saw “a
very good probability Teva could prevail” against Abbott and
Besins at trial in the other lawsuit. AbbVie, 329 F. Supp. 3d at
115. He also said he advised Perrigo that it had a 75 percent
chance of success, had the litigation proceeded to trial. He
explained this figure meant Perrigo felt “very, very strongly
about [its] chances for success, recognizing that there is [an]
inherent uncertainty . . . any time a case gets in front of an
arbiter.” App. 4071.
21
Abbott and Teva also settled in December 2011, soon
after the court set a trial date. Abbott agreed to license Teva to
market its generic 1% testosterone gel on December 27,
2014—almost six years before the ’894 patent expired. Teva
pushed unsuccessfully for an earlier market–entry date in
settlement negotiations.
On the same day Abbott and Teva settled the
infringement suit, they also made a deal involving a popular
brand-name cholesterol drug named TriCor. A previous
settlement between Abbott and Teva had set Teva’s entry in the
TriCor market for July 2012. And because Teva was the first
generic challenger to TriCor, Teva was entitled to 180 days of
marketing exclusivity. Teva was struggling to capitalize on the
exclusivity period, though, because it could not secure FDA
approval. In the December 2011 deal, Abbott agreed to grant
Teva a license to sell a generic version of TriCor, which Abbott
would supply to Teva at Teva’s option, for a four-year term
beginning in November 2012. This supply agreement provided
for Teva to pay Abbott the costs of production, an additional
percentage of that cost, and a royalty.
According to the FTC, the December 2011 settlement
agreement and TriCor deal were an illegal reverse payment. A
reverse payment occurs when a patentee, as plaintiff, pays an
alleged infringer, as defendant, to end a lawsuit. See
Wellbutrin, 868 F.3d at 142 n.3 (citing Actavis, 570 U.S. at
140–41). Such agreements can be anticompetitive if they allow
a brand-name company to split its monopoly profits with a
generic company in exchange for the generic agreeing to delay
market entry. As applied here, the FTC alleges Abbott
calculated that it would sacrifice about $100 million in TriCor
sales, but that was a small fraction of the billions of dollars in
AndroGel revenue it protected by deferring competition in the
22
TTRT market for three years. Deferring competition also gave
Abbott time to shift sales to Androgel 1.62%, for which there
were no generic competitors. As for Teva, it “concluded that it
would be better off by sharing in AbbVie[’s] monopoly profits
from the sale of AndroGel than by competing.” App. 4418.
Teva’s settlement triggered the acceleration clause in
Perrigo’s settlement agreement, so Perrigo’s licensed entry
date became December 27, 2014.
J. Teva and Perrigo’s generic versions of AndroGel
In February 2012, the FDA approved Teva’s hybrid
NDA for the sachet form of its generic 1% testosterone gel.
Teva withdrew the pump form from its application after the
FDA identified a safety concern with the packaging. But the
FDA allowed Teva to resubmit the pump form as a post-
approval amendment.
In January 2013, the FDA approved Perrigo’s hybrid
NDA for generic 1% testosterone gel. It then considered the
gel’s therapeutic equivalence rating. Perrigo sent the FDA three
letters to expedite the FDA’s consideration. AbbVie petitioned
the FDA to issue Perrigo’s product a BX rating.
In March 2014, Perrigo sued the FDA, accusing it of
unreasonable delay. The FDA responded that “Perrigo has
itself obviated the need for a prompt decision by reaching an
agreement with [Abbott] not to market until December 2014.”
AbbVie, 329 F. Supp. 3d at 116. It said it expected to rate
Perrigo’s gel “by July 31, 2014—some five months before
Perrigo’s planned product launch.” Id. On July 23, 2014, the
FDA issued the gel an AB rating, and Perrigo dismissed its
lawsuit against the FDA. See id. at 116, 116 n.9. Perrigo
23
brought its gel to market on December 27, 2014, its licensed
entry date.
Also on July 23, 2014, the FDA issued Teva’s gel a BX
rating. Teva never marketed the product.
II. PROCEDURAL HISTORY
The FTC sued AbbVie, Abbott, Unimed, Besins, and
Teva under Section 13(b) of the FTC Act in the United States
District Court for the Eastern District of Pennsylvania. 15
U.S.C. § 53(b). We refer to AbbVie, Abbott, Unimed, and
Solvay as “AbbVie” for simplicity.
In Count I of the complaint, the FTC alleged AbbVie
and Besins willfully maintained a monopoly through a course
of anticompetitive conduct, including sham patent litigation
against Teva and Perrigo. In Count II, the FTC alleged AbbVie
restrained trade by entering into an anticompetitive reverse-
payment agreement with Teva. The FTC requested that the
Court enjoin AbbVie and Besins “from engaging in similar and
related conduct in the future,” and that the Court “grant such
other equitable [monetary] relief as [it] finds necessary,
including restitution or disgorgement.” App. 4454.
AbbVie and Besins moved to dismiss “Count I to the
extent it [wa]s premised on the” alleged reverse payments,
under Rule 12(b)(6) of the Federal Rules of Civil Procedure.
Dkt. 2:14-cv-05151, ECF No. 38 at 1. AbbVie also moved to
dismiss Count II in its entirety, as it was based only on the
reverse-payment theory. The District Court granted both
motions.
24
The FTC moved for reconsideration after our decision
in King Drug Co. of Florence, Inc. v. SmithKline Beecham
Corp., 791 F.3d 388 (3d Cir. 2015). But the District Court
distinguished King Drug and denied the motion.
The FTC then moved for partial summary judgment on
the sham-litigation theory supporting Count I. AbbVie and
Besins sought summary judgment as well.
The sham-litigation theory required the FTC to prove
(1) that AbbVie had monopoly power in the relevant market
and (2) that AbbVie willfully acquired or maintained that
power through sham litigation. See Mylan, 838 F.3d at 433.
Sham litigation has two prongs. “First, the lawsuit must be
objectively baseless in the sense that no reasonable litigant
could realistically expect success on the merits.” Prof’l Real
Estate Invs., Inc. v. Columbia Pictures Indus., Inc. (“PRE”),
508 U.S. 49, 60 (1993). And second, the lawsuit must conceal
an attempt to interfere directly with the business relationships
of a competitor through the use of the governmental process as
an anticompetitive weapon. See id. at 60–61. The FTC sought
summary judgment only on the objective baselessness prong.
The District Court granted the FTC partial summary
judgment and denied AbbVie and Besins’s motions. The Court
held a sixteen-day bench trial on sham litigation’s subjective
prong and monopoly power, and it found for the FTC on both.
See AbbVie, 329 F. Supp. 3d at 146. The Court awarded
“equitable monetary relief in favor of the FTC and against
[AbbVie and Besins] in the amount of $448 million, which
represent[ed] disgorgement of [their] ill-gotten profits.” Id. It
25
declined to enter an injunction. The FTC, AbbVie, and Besins
now appeal.
The FTC argues the District Court erred in dismissing
its claims to the extent they relied on a reverse-payment theory;
abused its discretion in calculating the amount of
disgorgement; and abused its discretion in denying the FTC
injunctive relief.
AbbVie and Besins argue the District Court erred in
concluding the infringement suits against Teva and Perrigo met
either prong of the sham-litigation standard, and that AbbVie
had monopoly power in the relevant market. They also argue
the Court erred in ordering disgorgement because Section
13(b) of the FTC Act does not authorize disgorgement, the
disgorgement is a penalty rather than an equitable remedy, and
the FTC failed to prove statutory preconditions for injunctive
relief. Finally, they argue the Court abused its discretion in
calculating the amount of disgorgement
III. JURISDICTION
The District Court had jurisdiction under 28 U.S.C.
§ 1331. The parties to this appeal agree that we have
jurisdiction. Yet we have a “continuing obligation to . . . raise
the issue of subject matter jurisdiction if it is in question.”
Bracken v. Matgouranis, 296 F.3d 160, 162 (3d Cir. 2002)
(citations omitted).
Our jurisdiction under 28 U.S.C. § 1291 extends to
“appeals from all final decisions of the district courts of the
United States.” But there is an exception. The United States
Court of Appeals for the Federal Circuit has “exclusive
jurisdiction . . . of an appeal from a final decision of a district
26
court of the United States . . . in any civil action arising
under . . . any Act of Congress relating to patents.” 28 U.S.C.
§ 1295(a)(1) (emphasis added).
A civil action “aris[es] under” federal patent law if “a
well-pleaded complaint” shows either that “federal patent law
creates the cause of action,” or “the plaintiff’s right to relief
necessarily depends on resolution of a substantial question of
federal patent law, in that patent law is a necessary element of
one of the well-pleaded claims.” Christianson v. Colt Indus.
Operating Corp., 486 U.S. 800, 809 (1988) (emphasis added).
In this appeal, the former basis for the Federal Circuit’s
jurisdiction does not apply because “[f]ederal . . . antitrust law,
not federal patent law, creates [the FTC’s] claims.” In re Lipitor
Antitrust Litig., 855 F.3d 126, 145 (3d Cir. 2017) (emphasis
omitted). So “[t]his case . . . turns on the [latter basis]” for the
Federal Circuit’s exclusive jurisdiction. Id.
The latter basis applies only if two requirements are
met. First, federal patent law must be a “necessary” element of
one of the plaintiff’s well-pleaded claims. Here, the word
“necessary” takes its strict, logical meaning: “a claim
supported by alternative theories in the complaint may not
form the basis for [the Federal Circuit’s exclusive jurisdiction]
unless patent law is essential to each of those theories.”
Christianson, 486 U.S. at 810 (emphasis added). And the
patent-law issues must be “substantial.” Id. at 809.
The Supreme Court has yet to interpret the
substantiality requirement in a case involving 28 U.S.C.
§ 1295(a)(1) in its current form. But it has addressed the
requirement in cases involving 28 U.S.C. § 1338(a), which is
analogous because it gives district courts exclusive jurisdiction
over “any civil action arising under any Act of Congress
27
relating to patents.” (emphasis added). In Gunn v. Minton, 568
U.S. 251 (2013), the Court held a state legal malpractice claim
arising out of a patent infringement proceeding did not present
a “substantial” federal issue vesting federal district courts with
exclusive jurisdiction. Id. at 261. The Court first clarified that
whether a question is “substantial” turns not on the
“importance of the issue to the plaintiff’s case and to the
parties,” but instead on “the importance of the issue to the
federal system as a whole.” Id. at 260. Applying that standard,
it emphasized that because the legal malpractice claim was
“backward-looking” and the issue it raised was “hypothetical,”
the state court could not change the patent’s invalidity as
determined by the prior federal patent litigation. Id. at 261. Nor
could the state court undermine the uniformity of federal patent
law going forward, because federal courts “are of course not
bound by state court . . . patent rulings” and “state courts can
be expected to hew closely to the pertinent federal precedents.”
Id. at 261–62 (citations omitted). Moreover, any preclusive
effect the state court’s ruling might have “would be limited to
the parties and patents that had been before the state court.” Id.
at 263. Finally, the mere possibility that the state court might
misunderstand patent law and incorrectly resolve a state claim
was not “enough to trigger the federal courts’ exclusive patent
jurisdiction.” Id.
This appeal meets neither of the requirements for the
latter basis of the Federal Circuit’s exclusive jurisdiction. Thus,
the Federal Circuit does not have exclusive jurisdiction here.
First, federal patent law is not a “necessary” element of one of
the FTC’s well-pleaded claims. In its complaint, the FTC
“challenges a course of anticompetitive conduct,” which the
complaint defines to include AbbVie and Besins’s “sham
patent infringement litigation” and “[AbbVie’s] . . . illegal
28
[reverse-payment] agreement.” App. 4416. The complaint then
asserts two counts. Count II (Restraint of Trade) claims AbbVie
violated federal antitrust law by entering into an
anticompetitive reverse-payment agreement with Teva. App.
4453–54. We have held that “reverse-payment antitrust claims
do not present a question of patent law.” Lipitor, 855 F.3d at
146 (citing Actavis, 570 U.S. at 158 (“[T]he size of the
unexplained reverse payment can provide a workable surrogate
for a patent’s weakness, all without forcing a court to conduct
a detailed exploration of the validity of the patent itself.”)
(citation omitted)). Thus, patent law is not a necessary element
of Count II.
The same reasoning applies to Count I
(Monopolization). It first “reallege[s] and incorporate[s] by
reference” all of the complaint’s allegations. App. 4453. It then
asserts that AbbVie and Besins willfully maintained a
monopoly “through a course of anticompetitive conduct,
including filing sham patent litigation against Teva and
Perrigo.” Id. By its terms, Count I challenges a “course of
anticompetitive conduct,” which the complaint earlier defines
to include not only sham litigation, but also the reverse-
payment agreement. Because reverse-payment theories do not
present a question of patent law, patent law is not a necessary
element of Count I either.
Our reasoning is consistent with the Supreme Court’s
decision in Christianson and our decision in Lipitor. In both
cases, the presence of “non-patent-law theories of liability
supporting the . . . plaintiffs’ monopolization claims vest[ed]
jurisdiction over their appeals” in the regional circuit, “not the
29
Federal Circuit.” Lipitor, 855 F.3d at 146 (citing Christianson,
486 U.S. at 812).
The parties’ conduct before the District Court also
supports our interpretation. AbbVie and Besins moved to
dismiss “Count I to the extent it [wa]s premised on the” alleged
reverse payments. Dkt. 2:14-cv-05151, ECF No. 38 at 1. The
District Court granted that motion. Because Count I is
premised, at least in part, on this non-patent-law theory, the
Federal Circuit does not have exclusive jurisdiction over this
action.
It is true that the FTC pleads in Count I that the course
of conduct “includ[es]” sham patent litigation. App. 4453. And
a sham-litigation theory does present patent-law questions
because it requires us to review the objective reasonableness of
AbbVie and Besins’s patent-infringement litigation against
Teva and Perrigo. See PRE, 508 U.S. at 60. But that fact does
not undermine our jurisdiction because the sham-litigation
theory is one of two theories supporting Count I. And the other
theory—the reverse-payment theory—does not present a
question of patent law. See Christianson, 486 U.S. at 810.
We also note that the FTC has not contended that Besins
and Teva entered into an independent reverse-payment
agreement. Thus, it might be argued the FTC’s right to relief as
against Besins necessarily depends on resolution of patent-law
questions. 1 We disagree because the FTC’s complaint may be
read to allege that Besins participated in AbbVie’s settlement
with Teva. The complaint notes “[t]he sham lawsuits did not
1
Judge Phipps would have accepted this argument and
held we have jurisdiction because the patent-law issues the
FTC’s sham-litigation theory presents are not substantial.
30
eliminate the threat of Teva’s and Perrigo’s products to AbbVie
Defendants and Besins’s monopoly.” App. 4441. It then asserts
“AbbVie . . . and Besins . . . turned to other ways to preserve
their monopoly,” including AbbVie’s settlement with Teva.
App. 4442. As mentioned above, the parties’ conduct before
the District Court supports our reading because both AbbVie
and Besins moved to dismiss “Count I to the extent it [wa]s
premised on the” alleged reverse payments.
Thus, patent law is not a “necessary” element of one of
the FTC’s well-pleaded claims, so the latter basis for the
Federal Circuit’s exclusive jurisdiction does not apply.
Second, the patent-law issues that the FTC’s sham-
litigation theory presents are not “substantial,” in the sense that
they are important to the “federal system as a whole.” Gunn,
568 U.S. at 260. So even if federal patent law were a
“necessary” element of one of the FTC’s well-pleaded claims,
the latter basis for the Federal Circuit’s exclusive jurisdiction
still would not apply. Like the state legal malpractice claim in
Gunn, the sham-litigation theory here is purely backward
looking: just as the state court’s adjudication of the legal
malpractice claim could not change the result of the prior
federal patent litigation, our adjudication of the FTC’s sham-
litigation theory cannot change the settlement that resulted
from AbbVie and Besins’s infringement suits against Teva and
Perrigo. See id. at 261. 2
Nor would adjudicating the sham-litigation theory
undermine the uniformity of federal patent law. See id. at 261–
2
It might be argued the patent-law issues Gunn
presented are less substantial than the ones we face here
because the patent litigation in Gunn led to the patent’s
31
62. The reasons for this are general and case specific.
Generally, much like the state court’s decision in Gunn could
not bind federal courts, the parts of our decision in this appeal
that interpret patent law cannot bind the Federal Circuit or
district courts outside the Third Circuit. See id. And like the
state court in Gunn, we must hew closely to the Federal
Circuit’s precedents. See id. If the patent-law issues we decide
arise frequently, they “will soon be resolved within [the Federal
Circuit], laying to rest any contrary . . . precedent.” Id. at 262.
Otherwise, they are “unlikely to implicate substantial federal
interests.” Id.
There are two additional, case-specific reasons that
adjudicating the sham-litigation theory would not undermine
the uniformity of federal patent law. First, litigation is a sham
only if it is objectively baseless, meaning “no reasonable
litigant could realistically expect success on the merits.” PRE,
508 U.S. at 60. Our application of this standard poses no threat
to the uniformity of federal patent law. Consider our choices in
this appeal: AbbVie and Besins’s lawsuits were or were not
shams. If the former, it must be true that the patent law we
apply is so clear that AbbVie and Besins were unreasonable in
suing Teva or Perrigo for infringement and expecting to
invalidation, see id. at 255, whereas the ’894 patent has not
been invalidated. Indeed, while the ’894 patent expired on
August 30, 2020, AbbVie and Besins may sue for infringement
for up to six years after that date. See 35 U.S.C. § 286. We think
this distinction is immaterial under Gunn, which emphasized
that state-court adjudication of the legal malpractice claim
would not change the result of the prior federal patent
litigation, rather than emphasizing the result itself. See 568
U.S. at 261.
32
succeed. Such a holding would effectively adjudicate the
merits of an infringement claim but at no cost to uniformity.
And the latter holding would mean only that AbbVie and
Besins were not unreasonable in expecting success in their
infringement suits. That conclusion would not undermine
uniformity because it would not adjudicate the merits of the
infringement claims.
Moreover, whether AbbVie and Besins’s infringement
lawsuits were shams depends on whether the tangentiality
exception to prosecution history estoppel applies. But the
Federal Circuit has cautioned against applying analogical
reasoning in determining tangentiality. See Eli Lilly & Co. v.
Hospira, Inc., 933 F.3d 1320, 1332 n.5 (Fed. Cir. 2019) (“[W]e
find the analogies to other cases less helpful than a direct
consideration of the specific record of this case and what it
shows about the reason for amendment and the relation of that
reason to the asserted equivalent.”). Because the Federal
Circuit limits reliance on its own precedents in determining
tangentiality, it follows that our decision in this appeal will
have limited effect on the uniformity of patent law. Even
setting Eli Lilly aside, however, the rarity of the patent-law
issues these appeals present counsels in favor of our
jurisdiction: the issues are not ones whose resolution will
control numerous other cases. See Gunn, 568 U.S. at 262
(quoting Empire Healthchoice Assurance, Inc. v. McVeigh, 547
U.S. 677, 700 (2006)).
Finally, here, as in Gunn, the preclusive effect of our
ruling “would be limited to the parties and patents” before us.
See 568 U.S. at 263. And the mere possibility that we might
misunderstand patent law is not dispositive. See id. So the
patent-law issues that the FTC’s sham-litigation theory
presents are not “substantial.” Even if federal patent law were
33
a “necessary” element of one of the FTC’s well-pleaded
claims, the latter basis for the Federal Circuit’s exclusive
jurisdiction still would not apply.
Before concluding, we note a prudential consideration
supporting our jurisdiction: “[u]nder the Federal Circuit’s
choice-of-law rules, it would apply Third Circuit antitrust
jurisprudence . . . when reviewing whether [the FTC] states[s
a] plausible claim[] for relief under” a reverse-payment theory.
Lipitor, 855 F.3d at 148 (citing Nobelpharma AB v. Implant
Innovations, Inc., 141 F.3d 1059, 1068 (Fed. Cir. 1998) (the
Federal Circuit “appl[ies] the law of the appropriate regional
circuit to issues involving other elements of antitrust law such
as relevant market, market power, damages, etc., as those
issues are not unique to patent law”)). The Federal Circuit
would also apply our precedent when reviewing the District
Court’s judgment on the sham-litigation theory, except when
the judgment raised issues unique to patent law. See id.
Needless to say, we are as capable of applying our own law as
the Federal Circuit. And it makes eminent sense for this Court
to develop our own law in this area.
In summary, neither basis for the Federal Circuit’s
exclusive jurisdiction applies: federal patent law does not
create the FTC’s cause of action, and the FTC’s right to relief
does not necessarily depend on resolution of a substantial
question of federal patent law. So this civil action does not
“aris[e] under” federal patent law within the meaning of 28
U.S.C. § 1295(a)(1). We have jurisdiction under 28 U.S.C.
§ 1291.
34
IV. LIABILITY
Having assured ourselves of our jurisdiction, we turn to
the merits of these cross-appeals. We hold the District Court
erred by rejecting the reverse-payment theory and in
concluding AbbVie and Besins’s litigation against Teva was a
sham. The Court did not err, however, in concluding the
Perrigo litigation was a sham and that AbbVie and Besins had
monopoly power in the relevant market.
A. The District Court erred by rejecting the
reverse-payment theory.
We review the District Court’s dismissal order de novo.
Phillips v. Cnty. of Allegheny, 515 F.3d 224, 230 (3d Cir. 2008)
(citation omitted). We must “accept all factual allegations as
true, construe the complaint in the light most favorable to the
plaintiff, and determine whether, under any reasonable reading
of the complaint, the plaintiff may be entitled to relief.” Id. at
231 (internal citation and quotation marks omitted). A plaintiff
relying on a reverse-payment theory must “allege facts
sufficient to support the legal conclusion that the settlement at
issue involves a large and unjustified reverse payment under
Actavis.” In re Lipitor Antitrust Litig., 868 F.3d 231, 252 (3d
Cir. 2017) (citation omitted).
1. Actavis
A reverse payment occurs when a patentee pays an
alleged infringer to end a lawsuit. See Wellbutrin, 868 F.3d at
142 n.3 (citing Actavis, 570 U.S. at 140–41). A typical reverse
payment happens this way: “Company A sues Company B for
patent infringement. The two companies settle under terms that
require (1) Company B, the claimed infringer, not to produce
35
the patented product until the patent’s term expires, and (2)
Company A, the patentee, to pay B many millions of dollars.”
Actavis, 570 U.S. at 140.
Reverse payments can be anticompetitive in violation of
the antitrust laws. Absent the reverse payment in the previous
example, Company B might have prevailed by proving
Company A’s patent invalid. Even if the patent were valid,
Company B might prevail by showing it did not infringe. In
either case, generic drugs would have entered the market
before Company A’s patent was set to expire, and consumers
would have benefited from lower drug prices.
In Actavis, the Supreme Court held reverse payments
“can sometimes unreasonably diminish competition in
violation of the antitrust laws.” Id. at 141. That case, like this
one, involved AndroGel. See id. at 144. Solvay sued Actavis,
Inc., a company seeking to market a generic version of the gel.
See id. at 145. Solvay and Actavis settled under the following
terms: (1) “Actavis agreed that it would not bring its generic to
market until . . . 65 months before Solvay’s patent expired
(unless someone else marketed a generic sooner)”; (2)
“Actavis also agreed to promote AndroGel to urologists”; and
(3) “Solvay agreed to pay . . . an estimated $19–$30 million
annually, for nine years, to Actavis.” Id. “The companies
described these payments as compensation for other services
[Actavis] promised to perform.” Id. at 145. The FTC was
unpersuaded. It sued Solvay and Actavis, contending the
services had little value and the payments actually
compensated the generics for delaying their market entry. See
id.
The district court dismissed the FTC’s complaint, and
the United States Court of Appeals for the Eleventh Circuit
36
affirmed. See id. at 145–46. Both courts applied the “scope of
the patent” test, which provides that “absent sham litigation or
fraud in obtaining the patent, a reverse payment settlement is
immune from antitrust attack so long as its anticompetitive
effects fall within the scope of the exclusionary potential of the
patent.” Id. at 146 (citation omitted). This “categorical
rule . . . relied on the premise that, because a patentee
possesses a lawful right to keep others out of its market, the
patentee may also enter into settlement agreements excluding
potential patent challengers from entering that market.”
Lipitor, 868 F.3d at 250 (citing Actavis, 570 U.S. at 146). The
Eleventh Circuit was also concerned that antitrust review of
reverse payments would undermine the general policy in favor
of settlements and “require the parties to litigate the validity of
the patent in order to demonstrate what would have happened
to competition in the absence of the settlement.” Actavis, 570
U.S. at 153.
The Supreme Court reversed. It first rejected the scope
of the patent test. The infringement suit Solvay and Actavis
settled “put the patent’s validity at issue, as well as its actual
preclusive scope.” Actavis, 570 U.S. at 147. And the parties’
settlement was both “unusual” and potentially anticompetitive,
because the FTC alleged Solvay “agreed to pay [Actavis] many
millions of dollars to stay out of its market, even though
[Actavis] did not have any claim that [Solvay] was
liable . . . for damages.” Id. at 147–48. These factors persuaded
the Court it would be “incongruous to determine antitrust
legality by measuring the settlement’s anticompetitive effects
solely against patent law policy, rather than measuring them
against procompetitive antitrust policies as well.” Id. at 148.
The Court then held that for five reasons, the district
court erred by dismissing the FTC’s complaint. See id. at 153.
37
First, reverse payments can be anticompetitive because they
allow a brand-name company to split its monopoly profits with
a generic company willing to delay market entry. See id. at
153–56. Second, reverse payments’ “anticompetitive
consequences will at least sometimes prove unjustified.” Id. at
156. A defendant might show that “traditional settlement
considerations, such as avoided litigation costs or fair value for
services” justified the reverse payment. Id. Alternatively,
antitrust review could reveal “a patentee is using its monopoly
profits to avoid the risk of patent invalidation or a finding of
noninfringement,” in which case the payment is not justified.
Id. Third and fourth, the “size of [an] unexplained reverse
payment can provide a workable surrogate for a patent’s
weakness” and a patentee’s market power, “all without forcing
a court to conduct a detailed exploration of the patent itself.”
Id. at 157–58 (citation omitted). Fifth, subjecting reverse
payments to antitrust review does not violate the general legal
policy in favor of settlements, because companies can settle in
other ways. See id. at 158. For example, a brand-name
company may “allow[] the generic manufacturer to enter the
patentee’s market prior to the patent’s expiration, without the
patentee paying the challenger to stay out prior to that point.”
Id. Thus, the Court concluded, “a reverse payment, where large
and unjustified,” can violate the antitrust laws. Id. at 158–60
(emphasis added).
2. King Drug and Lipitor
Since the Supreme Court decided Actavis, we have
applied its teachings on three occasions. See King Drug, 791
F.3d at 393; Lipitor, 868 F.3d at 239; Wellbutrin, 868 F.3d at
158. The parties to this appeal rely on King Drug and Lipitor.
38
In King Drug, we reinstated a complaint challenging a
settlement agreement in which the alleged reverse payment
took a form other than cash. See 791 F.3d at 393. There, direct
purchasers of the brand-name drug Lamictal sued its producer
(GlaxoSmithKline (GSK)) and generic applicant (Teva) over
their settlement of Teva’s challenge to the validity and
enforceability of GSK’s patents on Lamictal’s active
ingredient (lamotrigine). See id. Teva agreed to “end its
challenge to GSK’s patent in exchange for early entry into the
$50 million annual lamotrigine chewables market and GSK’s
commitment not to produce its own, ‘authorized generic’
version of Lamictal tablets for the market alleged to be worth
$2 billion annually.” Id. at 393–94. The purchasers claimed this
“no-AG agreement” was a reverse payment under Actavis
because it “was designed to induce Teva to abandon the patent
fight and thereby agree to eliminate the risk of competition in
the $2 billion lamotrigine tablet market.” Id. at 394.
Reversing the district court, we held the no-AG
agreement was actionable under Actavis. See id. The district
court had reasoned that “when the Supreme Court said
‘payment’ it meant a payment of money.” Id. at 405 (quotation
marks and citation omitted). We doubted “the Court intended
to draw such a formal line.” Id. at 405–06. We explained that
even though GSK did not pay Teva cash under the agreement,
it was “likely to present the same types of problems as reverse
payments of cash.” Id. at 404. The no-AG agreement could
have been worth millions of dollars, if not hundreds of millions
of dollars, to Teva. See id. Conversely, GSK’s commitment not
to produce an authorized generic transferred to Teva “the
profits [GSK] would have made from its authorized generic.”
Id. at 405. Thus, the agreement may have been “something
39
more than just an agreed-upon early entry”—it may have been
“pay-for-delay.” Id.
We also rejected the defendants’ counterargument that
the purchasers’ “allegations [were] far too speculative to satisfy
their burden of plausibly alleging that the settlement was
anticompetitive.” Id. at 409 (quotations and citation omitted).
Specifically, the defendants argued the purchasers needed to
plead that without the reverse payment: GSK and Teva would
have negotiated an alternative, more competitive agreement;
continued litigation ending in settlement would have yielded a
more competitive result; and Teva would have launched its
generics. See id.
We held the purchasers stated a claim. They alleged:
GSK agreed not to launch an authorized generic during Teva’s
180-day exclusivity period; the agreement was worth “many
millions of dollars of additional revenue”; GSK would
otherwise be incentivized to launch an authorized generic;
Teva likely would have launched alongside GSK; and GSK’s
patent was likely to be invalidated. See id. at 409–10. “And
although [the purchasers] concede[d] that Teva entered the
lamotrigine chewables market about 37 months early . . . the
chewables market, allegedly worth only $50 million annually,
was orders of magnitude smaller than the alleged $2 billion
tablet market the agreement [was] said to have protected.” Id.
at 410. Because the purchasers had plausibly alleged that “any
procompetitive aspects of the chewables arrangement were
outweighed by the anticompetitive harm from the no-AG
agreement,” they were entitled to discovery. Id.
We also rejected the district court’s alternative holding
that “the settlement . . . would survive Actavis scrutiny and
[was] reasonable.” Id. at 410–11. The purchasers were entitled
40
to discovery because they plausibly alleged the settlement was
anticompetitive. See id. at 411. And “[i]f genuine issues of
material fact remain[ed] after discovery, the rule-of-reason
analysis [would be] for the finder of fact, not the court as a
matter of law.” Id.
Next, in Lipitor, we addressed consolidated appeals
concerning two drugs: Lipitor and Effexor XR. See 868 F.3d
at 239. In the Lipitor litigation, we reinstated a complaint
alleging a generic applicant delayed entry into the market in
exchange for the brand-name producer settling a damages
claim for much less than the claim was really worth. See id. at
253–54. There, the plaintiffs were a putative class of direct
purchasers, a putative class of end payors, and several
individual retailers. See id. at 241. They sued Lipitor’s brand-
name producer (Pfizer Inc.) and its generic applicant (Ranbaxy
Inc.) over a “near-global” litigation settlement addressing
“scores of patent litigations [between Pfizer and Ranbaxy]
around the world.” Id. at 244. One part of that settlement
resolved Ranbaxy’s challenge to the validity and enforceability
of Pfizer’s patents on Lipitor. See id. at 242. It provided
Ranbaxy would delay its entry, “thus extending Pfizer’s
exclusivity in the Lipitor market” past the expiration of its
patents. Id. at 244–45. Another part of the settlement resolved
Pfizer’s claim against Ranbaxy for allegedly infringing
Pfizer’s patents on Accupril, a different drug. Id. at 243–44.
Before settling, Pfizer had reason to believe its claim was
worth hundreds of millions of dollars: Accupril’s annual sales
were “over $500 million”; Ranbaxy’s generic entry
“decimated” those sales; Pfizer sought treble damages for
willful infringement; and the district court granted Pfizer a
preliminary injunction and Pfizer posted a $200 million bond.
Id. Pfizer had also “expressed confidence that it would succeed
41
in obtaining a substantial monetary judgment from Ranbaxy.”
Id. at 244. Nevertheless, Pfizer agreed to settle this claim for a
mere $1 million. See id.
Reversing the district court, we held these two,
otherwise-unrelated parts of the global settlement agreement
were actionable under Actavis. See id. at 248, 253. The court
had required the plaintiffs to plead a “reliable” monetary
estimate of the dropped Accupril claims so it could determine
whether the reverse payment was large and unjustified. See id.
at 254. We rejected that requirement, explaining it “heightened
[the] pleading standard contrary to Bell Atlantic v. Twombly,
[550 U.S. 544 (2007)], and Ashcroft v. Iqbal, [556 U.S. 662
(2009)].” Id. Moreover, we said neither Actavis nor King Drug
“demanded [that] level of detail.” Id. at 254.
In fact, the plaintiffs’ allegations “easily match[ed], if
not exceed[ed], the level of specificity and detail of those in
Actavis and King Drug.” Id. at 253, 255. As relevant here, the
plaintiffs alleged:
Ranbaxy launched a generic version of Pfizer’s
brand drug Accupril “at risk” [of
infringement] . . . ; Pfizer had annual Accupril
sales over $500 million prior to Ranbaxy’s
launch . . . ; Pfizer brought suit and sought to
enjoin Ranbaxy’s generic sales . . . ; the District
Court granted the injunction halting Ranbaxy’s
sales of generic Accupril, which the Federal
Circuit affirmed . . . ; Pfizer posted ‘a $200
million bond in conjunction with’ the injunction
and informed the Court that Ranbaxy’s generic
sales ‘decimated’ its Accupril sales . . . ; Pfizer’s
suit was likely to be successful . . . ; and Pfizer
42
itself made statements about Ranbaxy’s
exposure . . . .
Id. at 253. The plaintiffs also alleged the release of the Accupril
claims was unjustified because the “potential liability in
Accupril ‘far exceeded’ any of Pfizer’s saved litigation costs or
any services provided by Ranbaxy.” Id. Thus, we held the
plaintiffs “sufficiently allege[d] that Pfizer agreed to release
the Accupril claims against Ranbaxy, which were likely to
succeed and worth hundreds of millions of dollars, in exchange
for Ranbaxy’s delay in the release of its generic version of
Lipitor.” Id.
The defendants countered that the plaintiffs did not
address other parts of the global litigation settlement that might
well have justified the alleged reverse payment. But because
the defendants had the burden of justifying a reverse payment,
Actavis did not “require antitrust plaintiffs to come up with
possible explanations for the reverse payment and then rebut
those explanations.” Id. at 256. The defendants also countered
that because Ranbaxy paid Pfizer $1 million, it was a
commonplace settlement to which Actavis does not apply. Id.
at 257. We said this argument “[could not] be squared with
Actavis” because “[i]f parties could shield their settlements
from antitrust review by simply including a token payment by
the purportedly infringing generic manufacturer, then
otherwise unlawful reverse payment settlement agreements
attempting to eliminate the risk of competition would escape
review.” Id. at 258.
Similarly, in the Effexor XR litigation, we reinstated a
complaint alleging a generic applicant delayed entry into the
Effexor market in exchange for the brand-name producer’s
agreement not to market an authorized generic—even though
43
the generic agreed to pay some royalties to the brand. See id.
at 254, 247. There, the plaintiffs were a putative class of end
payors, two third-party payors, and several retailers. See id. at
246. They sued Effexor’s generic applicant (Teva) and brand-
name producer (Wyeth, Inc.) over their settlement of Teva’s
challenge to the validity and enforceability of Wyeth’s patents
on Effexor. See id. at 247. Under the settlement, Teva and
Wyeth agreed to vacate a district court ruling construing the
patent claims unfavorably to Wyeth. See id. They further
agreed that Teva could market the extended-release version of
its generic nearly seven years before Wyeth’s patent expired,
and its instant-release version at some point before the patent
expired. See id. In exchange, Wyeth agreed it would not market
authorized generics during Teva’s 180-day exclusivity period.
See id. In return, Teva agreed to pay Wyeth royalties. See id.
Reversing the district court, we held the no-AG
agreement was actionable under Actavis. Given the similarities
between King Drug and the Effexor litigation, we will not
repeat the Effexor plaintiffs’ allegations here. See id. at 258–
59. We mention the Effexor litigation only to highlight two
counterarguments the defendants made. First, the defendants
argued “the reverse payment was not large because the
complaints failed to sufficiently allege that Wyeth would have
released an authorized generic but for its settlement agreement
with Teva.” Id. They explained that “Wyeth has rarely
introduced authorized generics in response to the entry of a
generic into one of their branded drugs’ markets.” Id. at 260.
We rejected this argument because the mere fact that “Wyeth
does not typically introduce authorized generics into the
market” did not “render[] [the plaintiffs’] allegations about the
value of the no-AG agreement implausible.” Id. at 260–61.
Second, the defendants argued the royalties Teva agreed to pay
44
Wyeth justified the reverse payment. See id. We responded that
“[a]lthough the royalty licensing provisions will perhaps be a
valid defense, they require factual assessments, economic
calculations, and expert analysis that are inappropriate at the
pleading stage.” Id. at 261. In sum, we said, “Effexor plaintiffs
need not have valued the no-AG agreement beyond their
allegations summarized above . . . Nor were they required to
counter potential defenses at the pleading stage.” Id. at 262
(citation omitted).
3. Application
Two principles emerge from King Drug and Lipitor.
First, a reverse payment’s legality depends mainly on its
economic substance, not its form. The alleged reverse payment
in Actavis was made in cash. Yet the alleged reverse payments
in King Drug and Lipitor included two no-AG agreements and
the settlement of a valuable damages claim. The reverse
payment in Actavis was part of a single settlement agreement
addressing one drug (AndroGel). Yet the reverse payment in
the Lipitor litigation spanned two parts of a “near-global”
litigation settlement addressing two different drugs (Lipitor
and Accupril); and in King Drug, the challenged settlement
addressed a drug in two different forms (chewable and tablet).
Finally, the settlement in Actavis did not provide for cash to
flow from the generic entrant to the brand-name producer. Yet
the settlements in Lipitor provided for Ranbaxy to pay Pfizer
$1 million and for Teva to pay Wyeth royalties.
However meaningful these formalisms may be in other
areas of the law, they are disfavored in antitrust. The purpose
of antitrust law is “to protect consumers from arrangements
that prevent competition in the marketplace.” King Drug, 791
F.3d at 406 (citations omitted). Because of that unique purpose,
45
“economic realities rather than a formalistic approach must
govern.” United States v. Dentsply, Inc., 399 F.3d 181, 189 (3d
Cir. 2005). Accordingly, in King Drug and Lipitor, we read
Actavis practically; we read it to apply to potentially
anticompetitive reverse payments regardless of their form.
The second principle emerging from King Drug and
Lipitor is that the law of pleading applies to reverse-payment
theories. To survive a motion to dismiss, a plaintiff must
“allege facts sufficient to support the legal conclusion that the
settlement at issue involves a large and unjustified reverse
payment under Actavis.” Lipitor, 868 F.3d at 252 (citation
omitted). A plaintiff can meet this pleading standard without
describing in perfect detail the world without the reverse
payment, calculating reliably the payment’s exact size, or pre-
empting every possible explanation for it. Moreover, a district
court must accept a plaintiff’s well-pleaded allegations as true.
If a plaintiff plausibly alleges that an agreement’s
anticompetitive effects outweigh its procompetitive virtues,
the district court must accept that allegation and allow the
plaintiff to take discovery. If genuine issues of material fact
remain, the rule-of-reason analysis is for the factfinder, not the
court.
Applying these precedents here, the District Court erred
by dismissing the FTC’s claims to the extent they relied on a
reverse payment theory. The FTC plausibly alleged an
anticompetitive reverse payment. It alleged AbbVie and Besins
filed sham lawsuits against Teva and Perrigo in order to trigger
the automatic, 30-month stay of FDA approval on its generic
version of AndroGel. App. 4440 ¶ 99. But those suits “did not
eliminate the threat of Teva’s . . . products to [AbbVie] and
Besins’s monopoly,” because AbbVie and Teva both expected
Teva would win the infringement suit against it and would
46
introduce its generic in 2012—before 30 months had passed.
App. 4441 ¶¶ 107–09. So “[AbbVie] and Besins . . . turned to
other ways to preserve their monopoly.” App. 4442 ¶ 111.
Specifically, AbbVie “approached Teva to discuss a potential
settlement” that would give “[AbbVie] time to shift sales to its
reformulated product, AndroGel 1.62%.” Id. ¶ 112. Teva
agreed to “drop its patent challenge and refrain from competing
with [AndroGel] until December 2014.” App. 4443 ¶ 115. In
exchange, it asked AbbVie to sell it a “supply of . . . TriCor.”
Id. ¶ 113. AbbVie agreed. It authorized Teva to sell a generic
version of TriCor, which AbbVie would supply to Teva at
Teva’s option, for a four-year term beginning in November
2012. Id. ¶ 117. The supply agreement provided for Teva to
pay AbbVie the costs of production, an additional percentage
of that cost, and a royalty. See id.
The payment was plausibly “large.” The FTC alleges
the supply of TriCor was “extremely valuable” to Teva. App.
4444 ¶ 120. A previous settlement between AbbVie and Teva
had set Teva’s entry in the TriCor market for July 2012. App.
4442 ¶ 114. And because Teva was the first generic challenger
to TriCor, Teva was entitled to 180 days of marketing
exclusivity. See id. Teva was struggling to capitalize on the
exclusivity period, though, because it could not secure FDA
approval for its generic drug. See id. The TriCor deal enabled
Teva “to secure generic TriCor revenues in 2012 and its first
mover advantage.” App. 4444–45 ¶¶ 121, 124. Teva expected
its “net sales of authorized generic TriCor sales would be
nearly $175 million over a four-year period.” App. 4444 ¶ 120.
In fact, Teva’s actual sales were much higher. Id. They “far
exceed[ed]” the litigation costs that AbbVie, Besins, or Teva
saved by settling. App. 4445 ¶ 122. And they exceeded what
Teva had projected it was likely to earn by winning the
47
infringement suit and marketing its generic version of
AndroGel. Id. ¶ 123.
The payment was also plausibly “unjustified.” The FTC
alleges the TriCor deal “cannot be explained as an independent
business deal from Abbott’s perspective.” App. 4445 ¶ 125.
AbbVie “had no incentive to increase . . . generic competition
from Teva on another of its blockbuster products.” App. 4443
¶ 115. And the TriCor deal was “highly unusual” in other
respects. App. 4445 ¶ 126. For example, it did not condition
Teva’s launch on the launch of an independent generic. App.
4445–46 ¶ 126. It actually accelerated generic entry, because
“Teva’s launch triggered provisions in [AbbVie’s] agreements
with other generic TriCor ANDA filers allowing them to
launch their own generic[ versions].” App. 4446–47 ¶ 129.
Moreover, the royalty terms were “significantly worse for
[AbbVie]” than is usual in authorized-generic agreements,
including contemporaneous agreements that AbbVie entered.
App. 4447 ¶ 130. AbbVie expected to lose roughly $100
million in TriCor revenues as a result of the deal, and its
“modest income from the . . . deal did not come close to
making up this significant loss of revenue.” Id. ¶ 132.
Finally, it is plausible that the anticompetitive effects of
AbbVie’s settlement with Teva outweighed any
procompetitive virtues of the TriCor deal. The FTC alleges
AbbVie calculated that it would sacrifice $100 million in
TriCor sales, but that was a small fraction of the billions of
dollars in AndroGel revenue it protected by deferring
competition in the TTRT market for three years. See id.; cf.
King Drug, 791 F.3d at 410 (purchasers were entitled to
discovery because they plausibly alleged that “any
procompetitive aspects of the chewables arrangement were
48
outweighed by the anticompetitive harm from the no-AG
agreement”).
These allegations, if true, would “support the legal
conclusion that the settlement at issue involves a large and
unjustified reverse payment.” Lipitor, 868 F.3d at 252. So the
District Court erred by dismissing the FTC’s claims to the
extent they relied on a reverse-payment theory.
The District Court ruled that “when two agreements are
involved . . . the court must determine separately whether each
promotes competition.” AbbVie, 107 F. Supp. 3d at 437 (citing
Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438
(2009)). The Court then reasoned AbbVie’s settlement with
Teva promoted competition and was distinguishable from the
settlement in Actavis. In Actavis, the patentee paid the alleged
infringer. But here, the Court said, AbbVie and Besins “did not
make any payment, reverse or otherwise, to . . . Teva.” Id. at
436. Instead, they “simply allow[ed] Teva to enter the
AndroGel market almost six years prior to the expiration of the
’894 patent.” Id. It further stated that because “Actavis
specifically states that such an agreement does not run afoul of
the antitrust laws,” the settlement was procompetitive and
unactionable. Id. (citation omitted).
The District Court next reasoned the TriCor deal
promoted competition because “[i]t allow[ed] Teva to enter the
cholesterol drug market with a generic product to compete with
Abbott’s product and thus advantage[d] the purchasers of
cholesterol drugs.” Id. The Court stressed that while
“something of large value passed from [AbbVie] to Teva, it
was not a reverse payment under Actavis” because AbbVie was
“not making any payments to Teva.” Id. Rather, Teva was
“paying [AbbVie] for the supply of TriCor.” Id. And even
49
though the FTC alleged AbbVie was “charging a price that is
well below what is customary in such situations,” it did not
allege AbbVie “agreed to sell TriCor . . . for less than its cost.”
Id. Thus, the Court held the deal was procompetitive. Id.
The District Court’s reasoning is unpersuasive. The
Court cited Linkline for the proposition that if a settlement
involves two agreements, a court must determine separately
whether each promotes competition. But Linkline held “two
antitrust theories cannot be combined to form a new theory of
antitrust liability.” ZF Meritor, LLC v. Eaton Corp., 696 F.3d
254, 280 (3d Cir. 2012) (emphasis added) (citing Linkline, 555
U.S. at 457). The FTC’s complaint does not allege such a
combination, so Linkline does not apply.
Nor do our precedents support the rule that “when two
agreements are involved . . . [a] court must determine
separately whether each promotes competition.” AbbVie, 107
F. Supp. 3d at 437 (citation omitted). That rule violates two
principles from our precedents. It elevates form over substance
because companies could avoid liability for anticompetitive
reverse payments simply by structuring them as two separate
agreements—one in which the generic company agrees to
delay entry until patent expiration, and the other in which the
brand-name company agrees to split monopoly profits. In
effect, Actavis would become a penalty for bad corporate
lawyering instead of anticompetitive conduct. The rule also
contradicts pleading law. Here, the FTC plausibly alleged that
AbbVie’s settlement with Teva and the TriCor deal were
linked. The Court had to accept that allegation as true. See
Phillips, 515 F.3d at 230–31.
We are also unpersuaded by the District Court’s
economic analyses of the TriCor deal and AbbVie’s settlement
50
with Teva. As to the TriCor deal, the Court acknowledged that
“something of large value passed from [AbbVie] to Teva.”
AbbVie, 107 F. Supp. 3d at 436. Yet it said that transfer could
not be a reverse payment under Actavis because AbbVie was
not “making any payments to Teva.” Id. This reasoning cannot
be reconciled with King Drug, where we held a plaintiff may
base a reverse-payment theory on any “unexplained large
transfer of value from the patent holder to the alleged
infringer.” King Drug, 791 F.3d at 403 (emphasis added).
Moreover, the Court emphasized that Teva paid AbbVie
for the supply of TriCor. But in Lipitor, we held that parties
cannot “shield their settlements from antitrust review by
simply including a token payment by the purportedly
infringing generic manufacturer.” 868 F.3d at 258. Although
Teva’s payments “will perhaps be a valid defense, they require
factual assessments, economic calculations, and expert
analysis that are inappropriate at the pleading stage.” Id. at 261.
Finally, the Court intimated the result might be different if the
FTC had alleged AbbVie agreed to sell TriCor below-cost. But
the FTC did not have to allege the TriCor deal would appear as
a loss on AbbVie’s balance sheets; it needed only to allege that
through the deal, AbbVie unjustifiably transferred to Teva an
opportunity, and the profits associated with the opportunity
were large. See King Drug, 791 F.3d at 405 (GSK’s
commitment not to produce an authorized generic transferred
to Teva “the profits [GSK] would have made from its
authorized generic”) (emphasis added). So without expressing
an opinion whether the District Court correctly concluded the
TriCor deal was procompetitive, we think it analyzed
incorrectly the deal’s economic substance.
As to AbbVie’s settlement with Teva, the District Court
erred in concluding it was procompetitive as a matter of law.
51
Granted, the District Court was right that under Actavis, “an
agreement does not run afoul of the antitrust laws” if it simply
allows a generic company to enter a market before patent
expiration. AbbVie, 107 F. Supp. 3d at 436 (citing Actavis, 570
U.S. at 158 (“[Parties] may, as in other industries, settle in
other ways, for example, by allowing the generic manufacturer
to enter the patentee’s market prior to the patent’s expiration,
without the patentee paying the challenger to stay out prior to
that point.”) (emphasis added)). And it was reasonable for the
Court to think this exception reflects the Supreme Court’s view
that such agreements are so often procompetitive they should
be legal per se. Still, the exception applies only if a patentee
does not “pay[] the challenger to stay out [before patent
expiration],” and the District Court erred in concluding this
condition was met here. Actavis, 570 U.S. at 158. The Court
said AbbVie “did not make any payment, reverse or otherwise,
to . . . Teva.” AbbVie, 107 F. Supp. 3d at 436. But that finding
rested on the Court’s erroneous ruling that it had to analyze the
settlement separately from the TriCor deal, which even the
Court acknowledged involved a transfer of value from AbbVie
to Teva. Because the FTC plausibly alleged the TriCor deal
was a reverse payment, the settlement may have been
“something more than just an agreed-upon early entry”—it
may have been “pay-for-delay.” King Drug, 791 F.3d at 405.
And pay-for-delay is anticompetitive even if the delay does not
continue past patent expiration. It was this same
anticompetitive potential that led the Supreme Court to reject
the scope of the patent test in Actavis. See 570 U.S. at 147–48.
For these reasons, the District Court erred by dismissing
the FTC’s claims to the extent they relied on a reverse-payment
theory.
52
B. The District Court erred in concluding AbbVie and
Besins’s litigation against Teva was a sham; it did
not err in concluding the Perrigo litigation was a
sham.
1. Noerr-Pennington immunity
Under the Noerr-Pennington doctrine, “[t]hose who
petition [the] government for redress are generally immune
from antitrust liability.” PRE, 508 U.S. at 56. That includes the
right to sue in federal court. Cal. Motor Transp. Co. v. Trucking
Unlimited, 404 U.S. 508, 510, 515 (1972) (holding “the right
to petition extends to all departments of the Government,”
including the courts).
Noerr-Pennington immunity is not absolute.
Wellbutrin, 868 F.3d at 148. An exception arises if a lawsuit is
“a mere sham to cover what is actually nothing more than an
attempt to interfere directly with the business relationships of
a competitor.” E. R.R. Presidents Conference v. Noerr Motor
Freight, Inc., 365 U.S. 127, 144 (1961). In PRE, the Supreme
Court held this exception has two prongs:
First, the lawsuit must be objectively baseless in
the sense that no reasonable litigant could
realistically expect success on the merits. If an
objective litigant could conclude that the suit is
reasonably calculated to elicit a favorable
outcome, the suit is immunized under Noerr, and
an antitrust claim premised on the sham
exception must fail. Only if challenged litigation
is objectively meritless may a court examine the
litigant’s subjective motivation. Under this
second part of our definition of sham, the court
53
should focus on whether the baseless lawsuit
conceals an attempt to interfere directly with the
business relationships of a competitor through
the use of the governmental process—as
opposed to the outcome of that process—as an
anticompetitive weapon. This two-tiered process
requires the plaintiff to disprove the challenged
lawsuit’s legal viability before the court will
entertain evidence of the
suit’s economic viability.
508 U.S. at 60–61 (internal quotation marks, citations,
alteration, and footnote omitted). Under the objective
baselessness prong, a “probable cause determination
irrefutably demonstrates” a defendant’s immunity. Id. at 63.
Probable cause is a “reasonable belief that there is a chance that
a claim may be held valid upon adjudication.” Id. at 62–63
(internal quotation marks, citations, and alterations omitted);
see also id. at 65 (defendant was immune because “[a]ny
reasonable [litigant] in [its] position could have believed that it
had some chance of winning”). In determining reasonableness,
a court should consider the state of the law at the time of a
defendant’s suit. See id. at 65; see also Wellbutrin, 868 F.3d at
150. Generally, the more “unsettled” the law is, the more
reasonable is a belief that a claim will be held valid. PRE, 508
U.S. at 64–65 (probable cause supports a claim if it is
“arguably ‘warranted by existing law’”) (quoting FED. R. CIV.
P. 11). Even if the law was settled against the defendant,
however, that is not dispositive. Then, a court should ask
whether the defendant’s claim “at the very least was based on
an objectively ‘good faith argument for the extension,
modification, or reversal of existing law.’” Id. at 65 (quoting
FED. R. CIV. P. 11).
54
Under the subjective motivation prong, a plaintiff must
show the defendant “brought baseless claims in an attempt to
thwart competition (i.e., in bad faith).” Octane Fitness, LLC v.
ICON Health & Fitness, Inc., 572 U.S. 545, 556 (2014). Some
factors relating to a defendant’s “economic motivations” in
bringing suit include whether the defendant was “indifferent to
the outcome on the merits of the . . . suit, whether any damages
for infringement would be too low to justify . . . investment in
the suit, or whether [the defendant] had decided to sue
primarily for the benefit of collateral injuries inflicted through
the use of legal process.” PRE, 508 U.S. at 65–66 (citation
omitted).
Generally, a plaintiff seeking to show the sham
litigation exception faces “an uphill battle.” Wellbutrin, 868
F.3d at 147. And in some respects, the hill is steeper “in the
context of an ANDA case.” Id. at 149. “Since the submission
of an ANDA is, by statutory definition, an infringing act, an
infringement suit filed in response to an ANDA with a
paragraph IV certification could only be objectively baseless if
no reasonable person could disagree with the assertions of
noninfringement or invalidity in the certification.” Id. (citation
omitted). Moreover, the number of lawsuits a brand-name drug
manufacturer files will sometimes reveal little about its
subjective motivation for suing, because the Hatch-Waxman
Act “incentivizes [brands] to promptly file patent infringement
suits by rewarding them with a stay of up to 30 months if they
do so.” Id. at 157–58 (citing 21 U.S.C. § 355(j)(5)(B)(iii)). For
that reason, we have declined to apply a related exception to
Noerr-Pennington immunity—serial petitioning—in the
Hatch-Waxman context. Id. (citing Hanover 3201 Realty, LLC
v. Village Supermarkets, Inc., 806 F.3d 162 (3d Cir. 2015)).
55
Yet in other respects, the ANDA context may help a
plaintiff. The automatic, 30-month stay is a collateral injury the
defendant’s mere use of legal process invariably inflicts. And
though the stay ends if a court holds the defendant’s patent is
invalid or has not been infringed, it does not otherwise depend
on a suit’s outcome. Thus, a plaintiff may be able to show a
defendant was indifferent to the outcome of its infringement
suit, and the automatic, 30-month stay was an anticompetitive
weapon the defendant tried to wield.
In sum, applying the sham-litigation standard is a
delicate task. The defendant’s First Amendment right “to
petition the Government for a redress of grievances” is at stake.
U.S. Const. amend. I. So too is congressional policy, as
expressed in both the Hatch-Waxman Act and the antitrust
laws. We must not “penalize a brand-name manufacturer
whose ‘litigiousness was a product of Hatch-Waxman.’”
Wellbutrin, 868 F.3d. at 158 (citing Kaiser Found. Health
Plan, Inc. v. Abbott Labs, Inc., 552 F.3d 1033, 1047 (9th Cir.
2009)). “Doing so would punish behavior that Congress sought
to encourage.” Id. (citation omitted). At the same time, we must
not immunize a brand-name manufacturer who uses the Hatch-
Waxman Act’s automatic, 30-month stay to thwart
competition. Doing so would excuse behavior that Congress
proscribed in the antitrust laws.
2. Objective Baselessness
The District Court granted the FTC summary judgment
on sham litigation’s objective baselessness prong. We review
that judgment de novo. See Morgan v. Covington Twp., 648
F.3d 172, 177 (3d Cir. 2011).
56
a. Patent law’s doctrine of equivalents,
prosecution history estoppel, and tangentiality
Under the doctrine of equivalents, “[t]he scope of a
patent is not limited to its literal terms but instead embraces all
equivalents to the claims described.” Festo VIII, 535 U.S. at
732. There are at least two reasons for this doctrine. First,
because “the nature of language makes it impossible to capture
the essence of a thing in a patent application,” it is unrealistic
to expect a patentee to “capture every nuance of [his or her]
invention or describe with complete precision the range of its
novelty.” Id. at 731. Second, “[i]f patents were always
interpreted by their literal terms,” rival inventors might “defeat
the patent” simply by making “unimportant and insubstantial”
changes. Id. This would diminish the scientific and artistic
progress that the patent system seeks to foster. See id.
Although the doctrine of equivalents counters the threat
that literal interpretation of patents poses to scientific and
artistic progress, it creates another problem. One function of
patents is to notify would-be inventors about the scope of the
patentee’s property right. See id. (“A patent holder should
know what he owns, and the public should know what he does
not.”). Notice allows inventors to innovate without fear that the
patentee will sue them for infringement. See id. at 732. But
because the doctrine of equivalents untethers a patentee’s
property right from a patent’s literal terms, it tends to
undermine notice. See id. So the doctrine risks dampening
inventors’ innovative spirit.
Thus, patent law must balance “the needs of patentees
for adequate protection of their inventions” on the one hand,
and “the needs of would-be competitors for adequate notice of
the scope of that protection” on the other. Festo Corp. v.
57
Shoketsu Kinzoku Kogyo Kabushiki Co. (“Festo IX”), 344 F.3d
1359, 1385 (Fed. Cir. 2003) (Newman, J., concurring in part,
dissenting in part).
Recognizing the need for balance, the Supreme Court
has limited the doctrine of equivalents. One limitation—known
as prosecution history estoppel—applies when “the patentee
originally claimed the subject matter alleged to infringe but
then narrowed the claim in response to a rejection.” Festo VIII,
535 U.S. at 733. The patentee “may not argue that the
surrendered territory comprised unforeseen subject matter that
should be deemed equivalent to the literal claims of the issued
patent.” Id. at 733–34.
Prosecution history estoppel “ensures that the doctrine
of equivalents remains tied to its underlying purpose.” Id. at
734. “The doctrine of equivalents is premised on language’s
inability to capture the essence of innovation.” Id. But that
premise is unsound if a patent’s prosecution history shows that
the patentee “turned his attention to the subject matter in
question, knew the words for both the broader and narrower
claim, and affirmatively chose the latter.” Id. at 734–35. In that
case, the patentee’s competitors could reasonably infer the
patentee’s property right extended only so far as the narrower
claim.
Courts use a three-part test to determine whether
prosecution history estoppel applies:
1. The first question in a prosecution history
estoppel inquiry is whether an amendment filed
in the Patent and Trademark Office (PTO) has
narrowed the literal scope of a claim. . . . If the
58
amendment was not narrowing, then prosecution
history estoppel does not apply.
2. If the accused infringer establishes that the
amendment was a narrowing one, then the
second question is whether the reason for that
amendment was a substantial one relating to
patentability. . . . When the prosecution
history record reveals no reason for the
narrowing amendment, [the Supreme Court’s
decision in] Warner–Jenkinson [Co. v. Hilton
Davis Chem. Co., 520 U.S. 17 (1997)] presumes
that the patentee had a substantial reason relating
to patentability; consequently, the patentee must
show that the reason for the amendment was not
one relating to patentability if it is to rebut that
presumption. . . . In this regard, . . . a patentee’s
rebuttal of the Warner–Jenkinson presumption is
restricted to the evidence in the prosecution
history record. . . . If the patentee successfully
establishes that the amendment was not for a
reason of patentability, then prosecution history
estoppel does not apply.
3. If, however, the court determines that a
narrowing amendment has been made for a
substantial reason relating to
patentability . . . then the third question in a
prosecution history estoppel analysis addresses
the scope of the subject matter surrendered by the
narrowing amendment. . . . At that point Festo
VIII imposes the presumption that the patentee
has surrendered all territory between the original
claim limitation and the amended claim
59
limitation. . . . The patentee may rebut that
presumption of total surrender by demonstrating
that it did not surrender the particular equivalent
in question . . . Finally, if the patentee fails to
rebut the Festo presumption, then prosecution
history estoppel bars the patentee from relying
on the doctrine of equivalents for the accused
element. If the patentee successfully rebuts the
presumption, then prosecution history estoppel
does not apply and the question whether the
accused element is in fact equivalent to the
limitation at issue is reached on the merits.
Festo IX, 344 F.3d at 1366–67 (internal citations omitted)
(emphasis added). To rebut the presumption of total surrender,
a patentee “must show that at the time of the amendment one
skilled in the art could not reasonably be expected to have
drafted a claim that would have literally encompassed the
alleged equivalent.” Festo VIII, 535 U.S. at 741.
One way a patentee can meet this high standard is by
showing “the rationale underlying the narrowing amendment
[bore] no more than a tangential relation to the equivalent in
question.” Festo IX, 344 F.3d at 1369 (internal citation
omitted). This is the tangentiality exception to prosecution
history estoppel. In determining whether an amendment was
tangential to an equivalent, a court does not consider the
patentee’s subjective motivation for narrowing his claims. That
approach would overlook “the public notice function of a
patent and its prosecution history.” Id. (citations omitted).
Instead, the court considers the “objectively apparent”
motivation as suggested by the prosecution history. Id.
Although the tangentiality exception generally cannot be
reduced to hard-and-fast rules, see id. at 1368, one rule is clear:
60
“an amendment made to avoid prior art that contains the
equivalent in question is not tangential,” id. at 1369 (citation
omitted).
Like prosecution history estoppel, the tangentiality
exception balances the needs of patentees and would-be
competitors. It also ensures the doctrine of equivalents remains
tied to its underlying purpose. If the rationale for an
amendment is tangential to the alleged equivalent, “one skilled
in the art could not reasonably be expected to have drafted a
claim that would have literally encompassed the alleged
equivalent.” Festo VIII, 535 U.S. at 741. Thus, a patentee’s
competitors could not infer the patentee “turned his attention
to the subject matter in question, knew the words for both the
broader and narrower claim, and affirmatively chose the latter.”
Id. at 734–35. By the same token, however, the tangentiality
exception does not apply if the rationale for an amendment is
to avoid prior art that contains the alleged equivalent. Then the
prior art itself teaches the patentee how to draft a claim that
literally encompasses the equivalent. And because the patentee
turned his attention to the prior art in order to avoid it, the
patentee’s competitors could infer the patentee affirmatively
chose the narrower claim.
b. The District Court erred in concluding AbbVie
and Besins’s suit against Teva was objectively
baseless.
Teva’s paragraph IV notice asserted that because its gel
used the penetration enhancer isopropyl palmitate instead of
isopropyl myristate, the gel did not literally infringe the ’894
patent. It also argued the ’894 patent’s prosecution history
estopped AbbVie and Besins from claiming infringement on
61
the ground that isopropyl palmitate is equivalent to isopropyl
myristate.
On appeal, AbbVie and Besins concede the October
2001 amendment—which narrowed the patent application’s
claim 1 from all penetration enhancers to a list of 24 not
including isopropyl palmitate—was narrowing and was made
for a substantial reason related to patentability. See Festo IX,
344 F.3d at 1366 (citation omitted). Thus, we presume AbbVie
and Besins “surrendered all territory between the original
claim limitation and the amended claim limitation,” which
includes isopropyl palmitate. Id. at 1367 (citing Festo VIII, 535
U.S. at 740). To rebut this presumption, AbbVie and Besins
would have had to show that “at the time of the [October 2001]
amendment one skilled in the art could not reasonably be
expected to have drafted a claim that would have literally
encompassed [isopropyl palmitate].” Festo VIII, 535 U.S. at
741. AbbVie and Besins argue they could make this showing.
They contend the reason for the October 2001 amendment was
to overcome Mak’s use of oleic acid—not Allen’s disclosure
of isopropyl palmitate or other penetration enhancers. So, they
claim, the rationale for the amendment was tangential to
isopropyl palmitate. See Festo IX, 344 F.3d at 1369 (internal
citation omitted).
The FTC has not shown that no reasonable litigant in
AbbVie and Besins’s position would believe it had a chance of
winning. See PRE, 508 U.S. at 65. AbbVie and Besins’s
argument has support in the prosecution history record. Allen
disclosed isopropyl myristate—the penetration enhancer used
in AndroGel—and yet the October 2001 amendment retained
isopropyl myristate. Moreover, AbbVie and Besins gave three
reasons why the prior art did not suggest combining Mak and
Allen. Every one of those reasons distinguished the claimed
62
penetration enhancers from oleic acid, the penetration
enhancer Mak used. Finally, expert testimony could have
supported AbbVie and Besins’s interpretation of the
prosecution history. See Festo IX, 344 F.3d at 1369–70. The
District Court heard testimony from Dr. Jonathan Hadgraft,
Emeritus Professor of Biophysical Chemistry at University
College London School of Pharmacy. He testified the
“chemical and functional differences identified by the patent
applicants in their rationale for distinguishing the penetration
enhancers listed in the claims in the [October 2001]
amendment . . . from oleic acid would apply equally to
isopropyl palmitate.” App. 4511. For these reasons, AbbVie
and Besins could reasonably have argued that at the time of the
October 2001 amendment, one skilled in the art could not
reasonably be expected to have drafted a claim that would have
literally encompassed isopropyl palmitate. See Festo VIII, 535
U.S. at 741. In that case, prosecution history estoppel would
not apply. See id.
The FTC presents three main counterarguments.
First, the District Court concluded the rationale for the
October 2001 amendment was not tangential to isopropyl
palmitate because “[i]f AbbVie and Besins merely sought to
relinquish oleic acid and no other penetration enhancer in
October 2001, they easily could have said so.” AbbVie, 2017
WL 4098688, at *8. Relatedly, the FTC argues that because
AbbVie’s “oleic acid rationale does not explain the entire
[October 2001] amendment,” the rationale for the amendment
was not tangential to isopropyl palmitate as a matter of law.
FTC Resp. Br. 39–40 (citing Felix v. Am. Honda Motor Co.,
562 F.3d 1167, 1184 (Fed. Cir. 2009) and Amgen Inc. v.
Hoechst Marion Roussel, Inc., 457 F.3d 1293, 1315 (Fed. Cir.
2006)). But negative claim limitations of the sort the Court
63
mentioned are usually impermissible. See In re Schechter, 205
F.2d 185, 188 (C.C.P.A. 1953). Put differently, AbbVie and
Besins probably could not have claimed all penetration
enhancers “except oleic acid.” And the law is not as well-
settled as the FTC suggests. Granted, in the cases the FTC cites,
the Federal Circuit held the tangentiality exception did not
apply in part because the patentee’s rationale failed to explain
the entire amendment. But because the Federal Circuit has
refused to reduce the tangentiality exception to hard-and-fast
rules, see Festo IX, 344 F.3d at 1368, a reasonable litigant in
AbbVie and Besins’s position would not necessarily see those
decisions as foreclosing its claim.
More persuasive is the District Court’s reasoning that
the October 2001 amendment sought to overcome the Allen
prior art, which “listed isopropyl palmitate as one of five
penetration enhancers.” AbbVie, 2017 WL 4098688, at *8. The
FTC also argues Allen’s disclosure of isopropyl palmitate
“precludes a tangentiality finding,” because “an amendment
made to avoid prior art that contains the equivalent in question
is not tangential.” FTC Resp. Br. 38 (quoting Festo IX, 344
F.3d at 1369 (Pioneer Magnetics, Inc. v. Micro Linear Corp.,
330 F.3d 1352, 1357 (Fed. Cir. 2003))). This argument is more
persuasive because the rule the FTC cites is a well-settled
exception to the Federal Circuit’s case-by-case approach to the
tangentiality exception. See id. But the argument is not so
strong as to make the suits objectively unreasonable. AbbVie
and Besins could reasonably have argued the rule did not apply
or should be modified, because even though Allen disclosed
isopropyl palmitate, AbbVie and Besins made the October
2001 amendment “to avoid” Mak’s use of oleic acid, not
Allen’s disclosure of isopropyl palmitate or other penetration
enhancers. PRE, 508 U.S. at 65 (quoting FED. R. CIV. P. 11).
64
Thus, a reasonable litigant in AbbVie and Besins’s position
would not necessarily see this rule as foreclosing its claim.
Finally, the District Court reasoned that the “entire
prosecution history”—not just the October 2001 amendment—
is relevant to determine whether estoppel applies. AbbVie,
2017 WL 4098688, at *6 (citing Wang Labs, Inc. v. Toshiba
Corp., 993 F.2d 858, 867 (Fed. Cir. 1993) and Tex.
Instruments, Inc. v. U.S. Int’l Trade Comm’n, 988 F.2d 1165,
1174 (Fed. Cir. 1993)). Likewise, the FTC argues that “[e]ven
if the October 2001 amendment had not excluded isopropyl
palmitate, the later amendments would have.” FTC Resp. Br.
41. And those amendments “plainly could not have been
intended to distinguish oleic acid, which (as AbbVie concedes)
had already been excluded by the October 2001 amendment.”
FTC Resp. Br. 42. Again, the law is not as well-settled as the
FTC would have us believe. AbbVie and Besins could
reasonably have argued only the October 2001 amendment was
relevant under existing law. See Festo IX, 344 F.3d at 1369
(tangentiality “focuses on the patentee’s objectively apparent
reason for the narrowing amendment”) (emphasis added); see
also Felix, 562 F.3d at 1182–83; PRE, 508 U.S. at 64–65
(probable cause supports a claim if it is “arguably ‘warranted
by existing law’”) (quoting FED. R. CIV. P. 11).
Thus, the District Court erred in concluding AbbVie and
Besins’s suit against Teva was objectively baseless.
Accordingly, we will not consider the subjective motivation
prong as to Teva. See PRE, 508 U.S. at 60–61.
65
c. The District Court did not err in concluding
AbbVie and Besins’s suit against Perrigo was
objectively baseless.
Perrigo’s first paragraph IV notice asserted that because
its gel used the penetration enhancer isostearic acid instead of
isopropyl myristate, the gel did not literally infringe the ’894
patent. It also explained that the ’894 patent’s prosecution
history estopped AbbVie and Besins from claiming
infringement on the ground that isostearic acid is equivalent to
isopropyl myristate.
AbbVie and Besins concede the December 2001
amendment narrowed the patent application’s claims from 24
penetration enhancers including isostearic acid to isopropyl
myristate. But they argue it was not for a substantial reason
relating to patentability and, if it was, the rationale for the
amendment was tangential to isostearic acid.
No reasonable litigant in AbbVie and Besins’s position
would believe it had a chance of winning on these arguments.
First, AbbVie and Besins argue the December 2001
amendment was not for a substantial reason relating to
patentability, both because “the claims pending at the time of
the December 2001 amendment . . . were never rejected or
threatened with rejection,” and because they “amended the
claims in December 2001 to expedite the timing of patent
protection.” AbbVie Br. 47–48. This argument is untenable.
“[A] voluntary amendment may give rise to prosecution
history estoppel.” Festo IX, 344 F.3d at 1366 (internal
quotations and citation omitted). And expediting prosecution is
not a legitimate basis on which to avoid prosecution history
estoppel. See Biogen, Inc. v. Berlex Labs., Inc., 318 F.3d 1132,
1142 (Fed. Cir. 2003) (“[C]laims that were deliberately limited
66
in order to expedite prosecution by avoiding examination
cannot regain that scope for infringement purposes.”) (citing
Genentech, Inc. v. Wellcome Found. Ltd., 29 F.3d 1555, 1564
(Fed. Cir. 1994)). Regardless, no court would hold the
December 2001 amendment’s purpose was to expedite
prosecution. “[A] patentee’s rebuttal of the Warner–Jenkinson
presumption” that a narrowing amendment was made for a
substantial reason relating to patentability “is restricted to the
evidence in the prosecution history record.” Festo IX, 344 at
1367 (citations omitted). But nothing in the prosecution history
supports AbbVie and Besins’s claim that the December 2001
amendment’s purpose was to expedite prosecution. AbbVie
and Besins cite the amendment’s concluding sentence, which
reads: “The Examiner is urged to call the undersigned with any
questions or to otherwise expedite prosecution.” App. 1095
(emphasis added). But that boilerplate statement reveals
nothing about the amendment’s purpose. AbbVie and Besins
also argue that even if the purpose to expedite prosecution did
not appear in the prosecution history, it was clear “as a matter
of law.” Abbvie Br. 48 n.3. This argument fails even as an
argument “for the extension, modification, or reversal of
existing law.” PRE, 508 U.S. at 65 (quoting FED. R. CIV. P. 11).
As we have explained, the rule that a patentee’s rebuttal of the
Warner-Jenkinson presumption is restricted to the prosecution
history is fundamental; it balances “the needs of patentees for
adequate protection of their inventions” on the one hand, and
“the needs of would-be competitors for adequate notice of the
scope of that protection” on the other. Festo IX, 344 F.3d at
1385 (Newman, J., concurring in part, dissenting in part).
To the extent the prosecution history reveals the
December 2001 amendment’s purpose, it shows the
amendment related to patentability. In June 2001, the patent
67
examiner rejected the application’s claim 1. In October 2001,
AbbVie and Besins unsuccessfully tried to overcome the
rejection by amending the application. Their attorneys then had
an interview with the patent examiner in which she opined that
the application’s claims to isopropyl myristate were allowable
over the prior art. As the District Court found, these facts were
“a telling signal to any reasonable person that patentability
required the narrowing of any claim so that it disclosed
isopropyl myristate at a particular concentration as the sole
penetration enhancer.” AbbVie, 2017 WL 4098688, at *11.
AbbVie and Besins followed that signal in their December
2001 amendment: in the amendment’s conclusion—
immediately before the boilerplate discussed above—they
sought “reconsideration and withdrawal of the outstanding
rejections and allowance of the . . . claims.” App. 1095.
(emphasis added).
AbbVie and Besins also argue the rationale for the
December 2001 amendment was to overcome Mak’s use of
oleic acid, so it was tangential to isostearic acid. That argument
contradicts the prosecution history. AbbVie and Besins
narrowed their claims to exclude oleic acid in October 2001,
so that could not have been the purpose of the December 2001
amendment.
AbbVie and Besins counter that the District Court erred
by “assessing . . . whether [they] had a winning case against
Perrigo” instead of whether a reasonable litigant would believe
it had a chance of winning. AbbVie Br. 50. We disagree. While
the Court did assess whether they had a winning case, it also
assessed whether a reasonable litigant would believe it had a
chance of winning. See AbbVie, 2017 WL 4098688, at *9
(“[A]ny reasonable person who reads the prosecution history
of the ’894 patent can reach no other conclusion than that the
68
defendants have purposefully and not tangentially
excluded . . . isostearic acid.”).
Finally, AbbVie and Besins argue “[t]he favorable
settlements [they] obtained in both suits foreclose the
proposition that no reasonable person could have perceived a
chance of success for the infringement claims.” AbbVie Br.
50–51. They note Perrigo agreed to “continued market
exclusivity for AndroGel until late 2014—‘far beyond the
maximum 30-month Hatch-Waxman stay[]’ that would have
applied had the lawsuits continued.” Id. at 51. We think that,
ordinarily, settlement on terms favorable to a plaintiff suggests
a suit is not objectively baseless. See, e.g., Theme Promotions,
Inc. v. News Am. Mktg. FSI, 546 F.3d 991, 1008 (9th Cir.
2008); New W., L.P. v. City of Joliet, 491 F.3d 717, 722 (7th
Cir. 2007). But that is not the situation here. To start, the
settlement with Perrigo was not especially favorable to AbbVie
and Besins. AbbVie paid Perrigo $2 million as reasonable
litigation expenses and agreed to let Perrigo enter the market
for AndroGel at the same time as Teva—almost six years
before the ’894 patent expired. Even if the settlement was
favorable, however, that is not dispositive, since the record is
clear that Perrigo did not settle because it doubted its litigation
position. In Perrigo’s paragraph IV notice, it opined that “a
lawsuit asserting the ’894 patent . . . would be objectively
baseless and a sham, brought in bad faith for the improper
purpose of, inter alia, delaying Perrigo’s NDA approval.”
AbbVie, 329 F. Supp. 3d at 114. And Perrigo’s assistant general
counsel estimated it had a 75 percent chance of victory, which,
given the uncertainties inherent in litigation, is a strong
probability. Thus, as the District Court found, Perrigo settled
for reasons “independent of the merits of [AbbVie and
69
Besins’s] claims,” including especially the cost of litigating.
Id. at 123.
Thus, the District Court did not err in concluding
AbbVie and Besins’s suit against Perrigo was objectively
baseless.
3. The District Court did not err in concluding AbbVie
and Besins’s suit against Perrigo met sham litigation’s
subjective motivation prong.
The District Court’s evaluation of the subjective
motivation prong of the sham litigation test required it to make
findings of fact. We review those factual findings under the
deferential clear-error standard. See VICI Racing, LLC v. T-
Mobile USA, Inc., 763 F.3d 273, 282–83 (3d Cir. 2014). A
finding is clearly erroneous when “although there is evidence
to support it, the reviewing court on the entire evidence is left
with the definite and firm conviction that a mistake has been
committed.” United States v. U.S. Gypsum Co., 333 U.S. 364,
395 (1948). “Where there are two permissible views of the
evidence, the factfinder’s choice between them cannot be
clearly erroneous.” Anderson v. City of Bessemer City, N.C.,
470 U.S. 564, 574 (1985) (citations omitted). Clear error
review exists to prevent a reviewing court from
“overstep[ping] the bounds of its duty . . . [by] duplicat[ing]
the role of the lower court.” Id. at 573 (citing FED. R. CIV. P.
52(a)).
The District Court ruled the FTC “must prove [by clear
and convincing evidence] that defendants had actual
knowledge that the patent infringement suits here were
70
baseless.” AbbVie, 329 F. Supp. 3d at 120. 3 In support, it cited
City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S.
365 (1991), in which the Supreme Court said “[a] classic
example [of sham litigation] is the filing of frivolous objections
to the license application of a competitor, with no expectation
of achieving denial of the license but simply in order to impose
expense and delay.” Id. at 380 (emphasis added).
The District Court then determined certain evidence
submitted to show AbbVie and Besins’s knowledge was not
probative. This evidence included: (1) Solvay’s 2009 press
release, because “[n]one of the in-house AbbVie attorneys
identified as the decision-makers regarding the 2011 suit[]
against . . . Perrigo was previously employed by Solvay or
Unimed,” AbbVie, 329 F. Supp. 3d at 121; (2) business
planning documents, because “none of the[]
documents . . . was created by or influenced anyone who
played a role in the decision[] to sue . . . Perrigo,” id. at 122;
3
In a footnote in its response brief, the FTC challenges
the District Court’s requirement of proof by clear-and-
convincing evidence. We have not decided what standard of
proof applies to sham litigation’s subjective motivation prong.
Cf. Wellbutrin, 868 F.3d at 148 n.18 (referencing the objective
baselessness prong). But in discussing Noerr-Pennington cases
involving Section 1983 claims, we have explained that a higher
standard of proof is needed in Noerr-Pennington cases
involving patent disputes. See Campbell v. Pa. Sch. Bd. Ass’n,
2020 WL 5049051, at *7 (3d Cir. 2020). We need not adopt that
dicta today because “arguments raised in passing (such as, in a
footnote), but not squarely argued,” are forfeited on appeal.
John Wyeth & Bro. Ltd. v. CIGNA Intern. Corp., 119 F.3d 1070,
1076 n.6 (3d Cir. 1997).
71
(3) the settlement agreements, because “[p]arties often settle
litigation for a variety of reasons independent of the merits of
the claims,” id. at 123; and (4) AbbVie’s citizen petitions,
because the petitions “were [all] found to be at least partially
meritorious,” id. 4
Finally, the Court “zoom[ed] in on the individuals at
AbbVie and Besins who made the decision[] to file the
infringement action[] against . . . Perrigo [to] discern what
these individuals knew.” Id. at 123–24. Because AbbVie and
Besins invoked attorney-client privilege and the attorney work
product doctrine, the trial produced “no direct evidence of
[these individuals’] subjective intent.” Id. at 125. The Court
refused to draw any negative inference as a result. See id.
Instead, it considered “the surrounding circumstances and the
natural and probable consequences of [AbbVie and Besins’s]
knowing acts.” Id. The Court considered two pieces of
circumstantial evidence. First, because AbbVie and Besins’s
decisionmakers were all “very experienced patent attorneys”
who had reviewed Perrigo’s paragraph IV notices and
consulted outside counsel, they knew the lawsuit against
Perrigo was objectively baseless. Id. at 126. And second, the
decisionmakers—some of whom were long-time employees—
“knew the extensive financial benefits to [AbbVie and Besins]
if generic versions of AndroGel were kept or delayed from
entry into the market.” Id. The Court concluded “[t]he only
4
AbbVie and Besins argue the District Court erred by
not considering the business planning documents and
settlement agreements. The FTC argues the Court erred by not
considering Solvay’s 2009 press release. The Court correctly
concluded that none of this evidence is probative of the
decisionmakers’ subjective motivations.
72
reason for the filing of these lawsuits was to impose expense
and delay on . . . Perrigo so as to block [its] entry into the
TTRT market.” Id.
AbbVie and Besins argue the District Court erred by
merging sham litigation’s objective baselessness and
subjective motivation prongs. They claim “the relevant inquiry
under the subjective element [is] whether [the] decisionmakers
actually believed the lawsuits had no possibility of success”
and were therefore “subjective[ly] baseless[].” AbbVie Br. 56.
The FTC counters that the District Court required it to
prove more than was necessary, because the subjective inquiry
“has nothing to do with what a litigant knew or should have
known regarding the merits of its claims.” FTC Resp. Br. 57
(quoting Kilopass Tech., Inc. v. Sidense Corp., 738 F.3d 1302,
1313 (Fed. Cir. 2013)). Instead, the FTC argues, what matters
is the intent to “thwart competition.” Id. (citing Octane Fitness,
572 U.S. at 556).
We agree with the FTC that the District Court applied
an improper legal standard. The ultimate inquiry under sham
litigation’s subjective prong is a defendant’s subjective
motivation, not its subjective belief about the merits of its
claims. See PRE, 508 U.S. at 60–61; Octane Fitness, 572 U.S.
at 556. Thus, the term “subjective baselessness” is a misnomer.
That said, we disagree that the inquiry into a defendant’s
motivation has “nothing to do” with a defendant’s belief about
the merits of its claims. But cf. Kilopass, 738 F.3d at 1313.
Evidence that a defendant knew its claims were meritless may
help a plaintiff to show a defendant was “indifferent to the
outcome on the merits of the . . . suit” and “decided to sue
primarily for the benefit of collateral injuries inflicted through
the use of legal process.” PRE, 508 U.S. at 65 (citation
73
omitted). It is therefore unsurprising that evidence of a
defendant’s belief about the merits of its claims appears in a
“classic example” of sham litigation, Omni, 499 U.S. at 380, or
that it appeared in this case. So while evidence of a defendant’s
belief about the merits of its claims may be relevant to
determining a defendant’s motivation, it is not required in
every case. In short, a defendant can be ambivalent about the
merits while filing litigation for an improper purpose (i.e., in
bad faith).
We also reject AbbVie and Besins’s argument that the
District Court improperly merged sham litigation’s objective
baselessness and subjective motivation prongs. That argument
assumes the two prongs are distinct, but they are interrelated.
To see how, consider the following syllogism: (1) A lawsuit is
objectively baseless if “no reasonable litigant could
realistically expect success on the merits,” PRE, 508 U.S. at
60; (2) and a litigant who files an objectively baseless lawsuit
must have had some subjective motivation for suing; (3) but
because the lawsuit was objectively baseless, the litigant’s
subjective motivation could not have been success on the
merits, unless the litigant was unreasonable; (4) thus, a
reasonable litigant’s subjective motivation for filing an
objectively baseless lawsuit must be something besides success
on the merits. The District Court merely applied this syllogism.
It first held that AbbVie and Besins’s lawsuits were objectively
baseless. It then reasoned that because AbbVie and Besins’s
decisionmakers were all very experienced patent attorneys who
had reviewed Perrigo’s paragraph IV notices and consulted
outside counsel, they knew the lawsuits were baseless. Finally,
it reasoned that because the decisionmakers knew the lawsuits
were baseless, they must have been motivated by something
74
other than success on the merits. The District Court’s logic is
valid.
AbbVie and Besins respond that, under the District
Court’s analysis, “in virtually every Hatch-Waxman suit in
which a court finds objective baselessness, a finding of
subjective baselessness would necessarily follow.” AbbVie Br.
57. Not so. The syllogism the Court applied establishes only
that a reasonable litigant’s subjective motivation must have
been something besides success on the merits. It does not
necessarily follow that the motivation was to thwart
competition. For example, a company might file an objectively
baseless lawsuit because it subjectively (though unreasonably)
expected the lawsuit to succeed. In that case, a finding of
“subjective baselessness” would not necessarily follow from a
finding of objective baselessness.
AbbVie and Besins next argue that the circumstantial
evidence the Court considered was insufficient to establish the
subjective motivation prong by clear and convincing evidence,
especially given the presumption that “the assertion of a duly
granted patent is made in good faith.” AbbVie Br. 56 (quoting
C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1369 (Fed. Cir.
1998)).
We disagree. Because AbbVie and Besins invoked
attorney-client privilege and the attorney work product
doctrine, the Court properly considered the surrounding
circumstances and the natural and probable consequences of
AbbVie and Besins’s intentional acts to make its findings. Cf.
Howard Hess Dental Labs. Inc. v. Dentsply Intern., Inc., 602
F.3d 237, 257–58 (3d Cir. 2010) (“Specific intent in the
antitrust context may be inferred from a defendant’s unlawful
conduct.”) (citing Advo, Inc. v. Phila. Newspapers, Inc., 51
75
F.3d 1191, 1199 (3d Cir. 1995)). The Court noted that AbbVie
and Besins’s decisionmakers were all experienced patent
attorneys who had reviewed Perrigo’s paragraph IV notices
and consulted outside counsel. They also knew the extensive
financial benefits AbbVie and Besins would receive if generic
versions of AndroGel were kept or delayed from entry into the
market. Especially given the collateral injury the Hatch-
Waxman Act’s 30-month stay invariably inflicts, the Court was
permitted to conclude from this evidence that in filing an
objectively baseless lawsuit against Perrigo, the
decisionmakers were motivated not to assert a patent in good
faith, but to impose expense and delay on Perrigo to delay its
entry into the TTRT market. Anderson, 470 U.S. at 574.
Besins lastly argues the District Court clearly erred
because the FTC presented “no evidence” about “who in 2011
were the decisionmakers at Besins . . . and what those people
knew.” Besins Br. 14. It also argues the trial testimony “neither
addressed nor established who made the 2011 decisions to sue.
Nor did the FTC ask [Besin’s in-house counsel] MacAllister
who at Besins made those decisions.” Id. at 15.
The District Court did not clearly err. MacAllister
testified at trial that: he is a former patent examiner; he was
“the highest ranking attorney in-house at Besins,” App. 3672;
he “oversaw the global intellectual property group,” id.; and he
“advised on litigations concerning Besins’[s] patents,” App.
3673. An attorney for the FTC asked MacAllister whether he
was “involved in the decision to file patent litigation against
Perrigo in 2011.” App. 3690. He responded that he conferred
with AbbVie’s in-house counsel “related to the decision
whether or not to proceed with the lawsuit,” and that Besins’s
outside counsel provided him and others with advice that
“informed our decision as to whether or not to proceed with the
76
lawsuit.” Id. It was “permissible” for the Court to conclude
from this testimony that MacAllister decided to sue on Besins’s
behalf. Anderson, 470 U.S. at 574.
Thus, the District Court did not err in concluding
AbbVie and Besins’s suit against Perrigo concealed an attempt
to interfere directly with its business relationships, through the
use of the governmental process—as opposed to the
outcome of that process—as an anticompetitive weapon.
C. The District Court did not err in concluding
AbbVie and Besins had monopoly power in the
relevant market.
To prove monopolization, a plaintiff must establish that
the defendant had monopoly power in the relevant market. See
Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 306–07 (3d
Cir. 2007). Monopoly power is “the ability to control prices
and exclude competition in a given market.” Id.
The FTC relied on indirect evidence to establish
AbbVie’s monopoly power. “To support a claim of monopoly
power through indirect evidence, [a plaintiff] must show that
(1) [d]efendants had market power in the relevant market and
(2) that there were barriers to entry into the market.” Mylan,
838 F.3d at 435. Market power is “the ability to raise prices
above those that would otherwise prevail in a competitive
market.” Gordon v. Lewistown Hosp., 423 F.3d 184, 210 (3d
Cir. 2005) (citation omitted). A court can infer market power
from a market share significantly greater than 55 percent. See
Dentsply, 399 F.3d at 187. “Other germane factors include the
size and strength of competing firms, freedom of entry, pricing
trends and practices in the industry, ability of consumers to
substitute comparable goods, and consumer demand.” Id. A
77
defendant’s ability to maintain market share is also relevant.
See id. at 188–89 (citing United States v. Syufy Enters., 903
F.2d 659, 665–66 (9th Cir. 1990)). Barriers to entry include
“regulatory requirements, high capital costs, or technological
obstacles, that prevent new competition from entering a market
in response to a monopolist’s supracompetitive prices.”
Broadcom Corp., 501 F.3d at 307.
The parties agreed that the relevant geographic market
is the United States, so the District Court had to define only the
product market.
To determine if two products are in the same
market, we ask if they are readily substitutable
for one another, an inquiry that requires us to
assess the reasonable interchangeability of use
between a product and its substitute. We also
look to their cross-elasticity of demand, which is
defined as a relationship between two products,
usually substitutes for each other, in which a
price change for one product affects the price of
the other.
Mylan, 838 F.3d at 435–36 (internal quotation marks, citations,
and alterations omitted); see also SmithKline Corp. v. Eli Lilly
& Co., 575 F.2d 1056, 1064 (3d Cir. 1978) (requiring
“significant” cross-elasticity of demand).
The District Court defined the product market as “the
market for all TTRTs, that is all transdermal testosterone
replacement therapies within the United States.” AbbVie, 329
F. Supp. 3d at 134. It found that all TTRTs were “reasonably
interchangeable” and exhibited cross-elasticity of demand. See
id. at 131–32. By contrast, in considering the market for
78
TTRTs and injectables, the Court found that while TTRTs
were reasonably interchangeable with injectables, they
exhibited “little cross-elasticity of demand.” Id. at 133. It relied
on the following evidence:
• Injectables are much cheaper than AndroGel, yet
AbbVie has “consistently raised AndroGel’s wholesale
acquisition cost.”
• AbbVie executive James Hynd testified that AbbVie
does not price AndroGel against injectables and did not
offer rebates to match the price of injectables.
• AndroGel’s Director of Marketing Frank Jaeger
testified that AbbVie did not consider injectables to be
competition. He identified other TTRTs “such as
Axiron, Fortesta, and Testim as AndroGel’s
competitors.”
Id. The Court discounted an internal AbbVie document stating
that a rise in AndroGel’s copay was correlated with an increase
in injectables’ sales. It explained that factors besides price
drove the correlation, including “patient preference, the
existence of [specialized testosterone clinics], and the
disproportionate negative publicity testosterone gels received
after reports associating TTRTs with heightened
cardiovascular risk.” Id. For the same reason, the Court also
discounted a “patient switching study” that AbbVie and
Besins’s expert conducted. See id.
The District Court also found that AbbVie and Besins
had “a dominant share of the TTRT market in the relevant
period and that significant barriers existed for entry into that
79
market.” Id. at 136. It relied on the following evidence in
finding that AbbVie and Besins had a dominant share:
• “In the TTRT market, AndroGel was by far the most-
prescribed product and was widely-recognized as the
‘market leader’ from before 2011 through 2014.”
• In April 2011 (when AbbVie and Besins sued Teva),
AndroGel’s share of the TTRT market was 71.5
percent. In October 2011 (when they sued Perrigo),
AndroGel’s share was 63.6 percent. AndroGel’s share
“remained above 60[ percent] until the end of 2014,
when Perrigo’s generic 1% testosterone product entered
the market.”
• No other TTRT product ever held 10 percent or more of
the market during this period, and AndroGel’s market
share was always more than three times larger than the
market share of any of its brand-name competitors.
• “AbbVie was able to maintain its share of the TTRT
market with a profit margin of over 65[ percent]” during
this period, “even with huge rebates.”
• AbbVie increased the wholesale acquisition cost for
AndroGel during this period.
Id. at 134–35. Finally, the Court found significant barriers to
entry because “a generic drug has significant capital, technical,
regulatory, and legal barriers to overcome.” Id. at 135–36. It
explained that, although three brand-name TTRT products
(i.e., Fortesta, Axiron, and Vogelxo) entered the market
between 2011 and 2014, “they did not pose significant
80
competition to [AbbVie and Besins’s] monopolistic conduct”
because they held a low market share. Id. at 136.
AbbVie and Besins claim the District Court clearly
erred by excluding injectables from the product market for two
reasons. First, the record contained “voluminous evidence,
including expert testimony, showing substantial cross-
elasticity between topical TRTs and injectables.” AbbVie Br.
64. And second, the FTC’s expert conceded “some cross-
elasticity . . . between AndroGel and injectables” and
“presented no cross-elasticity study to support” the market the
Court defined. Id. at 64–65 (citation omitted). In sum, AbbVie
and Besins argue that the Court “defined the relevant antitrust
market in terms no expert had endorsed.” Id. at 29.
We disagree for several reasons. First, the mere fact that
the record contained evidence tending to show substantial
cross-elasticity between topical TRTs and injectables does not
mean the Court clearly erred. AbbVie employees conceded at
trial that AndroGel does not compete against injectables, so it
was at least “permissible” for the Court to exclude injectables
from the product market. Anderson, 470 U.S. at 574. Second,
while the FTC’s expert conceded some cross-elasticity
between AndroGel and injectables, he did not concede
significant cross-elasticity, which is required to find clear
error. See SmithKline Corp., 575 F.2d at 1064. Finally, the
FTC’s expert did study whether AndroGel and injectables
exhibited cross-elasticity of demand. App. 3862 (“I looked at
the data on what happened over time to a number of injectable
prescriptions and looked to see whether significant changes in
the price of the transdermal products, whether we could see an
effect on injectables . . . [The data] indicates a low cross-
elasticity of demand between AndroGel and injectables . . . .”).
While the expert did not “endorse” the market the Court
81
ultimately defined, his testimony supported the Court’s market
definition, and the FTC argued for that definition in the
alternative. App. 3491 (“[E]ven if the relevant market included
all other TRT products except injections, the market share has
established that AndroGel still possessed monopoly power.”).
AbbVie and Besins also contend the District Court
committed legal error by misapplying the legal standard as to
the existence of market power and barriers to entry. They argue
the Court gave dispositive weight to market share data and
Hatch-Waxman’s technical and regulatory requirements while
ignoring real-world evidence. They emphasize that three new
competing brand-name TTRTs entered the market between
2011 and 2014. We are unpersuaded.
The Court did not give dispositive weight to market
share data; it also considered consumer demand for AndroGel,
the durability of AndroGel’s market share, the size and
strength of AndroGel’s competitors, and AndroGel’s pricing
trends and practices. See Dentsply, 399 F.3d at 187–89
(explaining these are relevant factors). And the Court did not
ignore new entrants; it explained the three brand-name TTRT
products that entered the market between 2011 and 2014 were
not meaningful competitors to AndroGel because of their
modest market shares. So the District Court did not err in
concluding AbbVie and Besins had monopoly power in the
relevant market.
For all the reasons stated, we hold the District Court
erred by rejecting the reverse-payment theory and in
concluding AbbVie and Besins’s litigation against Teva was a
sham. We also hold that the Court did not err when it concluded
the Perrigo litigation was a sham and that AbbVie and Besins
had monopoly power in the relevant market.
82
V. REMEDIES
We turn finally to remedial issues. The District Court
erred in requiring AbbVie and Besins to disgorge $448 million
because district courts lack the power to order disgorgement
under Section 13(b) of the FTC Act. But it did not abuse its
discretion in denying injunctive relief. Nor is it futile to remand
the reverse-payment theory.
A. The District Court erred in ordering disgorgement.
The District Court ordered AbbVie and Besins to
disgorge $448 million in ill-gotten profits. It reasoned “[t]he
weight of authority . . . supports the conclusion that the grant
of authority in section 13(b) to provide injunctive relief
includes the full range of equitable remedies, including the
power to order a defendant to disgorge illegally obtained
funds.” AbbVie, 329 F. Supp. 3d at 137 (citation omitted). It
also said a contrary interpretation would “eviscerate the FTC
Act” because a monopolist would “be able to retain its ill-
gotten gains and simply face an injunction against future
wrongdoing.” Id.
Reviewing the District Court’s interpretation de novo,
see Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144, 151 (3d
Cir. 2009), we conclude it erred in ordering disgorgement
because district courts lack the power to do so under Section
13(b).
“The FTC has multiple instruments in its toolbox to
combat unfair methods of competition” and unfair or deceptive
acts or practices. FTC v. Shire ViroPharma, Inc., 917 F.3d 147,
155 (3d Cir. 2019). First is the FTC’s “traditional enforcement
tool,” Section 5 of the FTC Act. Id. (citing 15 U.S.C. § 45(b)).
83
That section allows the FTC to initiate an administrative
proceeding to obtain a cease-and-desist order against an unfair
method of competition or an unfair or deceptive act or practice.
See 15 U.S.C. § 45(b). The FTC can then sue in federal district
court to get “limited monetary remedies” for violations of the
order. Shire, 917 F.3d at 155. A respondent who violates an
order is liable for no more than $10,000 per violation. See 15
U.S.C. § 45(l). The FTC can also seek “mandatory injunctions”
and “such other and further equitable relief” as the court deems
appropriate. Id. Violators other than the respondent are also
liable for up to $10,000 per violation, but only if they violate
the order knowingly. See id. § 45(m)(1)(A).
Second, under Section 19 of the FTC Act, the FTC can
promulgate “rules which define with specificity acts or
practices which are unfair or deceptive.” Id. § 57a(a)(1)(B).
Alternatively, it can initiate an administrative proceeding to
obtain a cease-and-desist order. Id. § 57a(a)(2). In either case,
it can sue violators in federal district court. See id. § 57a(a)(1)–
(2). If the FTC promulgated a rule, the court can “grant such
relief as the court finds necessary to redress injury,” including
but not limited to “the refund of money or return of property”
and “the payment of damages.” Id. § 57b(b). Otherwise, the
FTC can obtain such relief only if it shows “a reasonable man
would have known under the circumstances” his conduct was
“dishonest or fraudulent.” Id. § 57b(a)(2).
A third enforcement tool is Section 13(b) of the FTC
Act. “Unlike Section 5, Section 13 was not part of the original
FTC Act.” Shire, 917 F.3d at 155. “Rather, [it] was added later
[in 1973] in an effort to solve one of the main problems of the
FTC’s relatively slow-moving administrative regime—the
need to quickly enjoin ongoing or imminent illegal conduct.”
Id.
84
The question presented in this appeal is whether a
district court has the power to order disgorgement under
Section 13(b). We start with the text, for where “the words of
the statute are unambiguous, the judicial inquiry is complete.”
Desert Palace, Inc. v. Costa, 539 U.S. 90, 91 (2003) (internal
quotation marks and citation omitted). Section 13(b) states:
Whenever the Commission has reason to
believe—
(1) that any person, partnership, or corporation is
violating, or is about to violate, any provision of
law enforced by the Federal Trade Commission,
and
(2) that the enjoining thereof pending the
issuance of a complaint by the Commission and
until such complaint is dismissed by the
Commission or set aside by the court on review,
or until the order of the Commission made
thereon has become final, would be in the
interest of the public—
the Commission by any of its attorneys
designated by it for such purpose may bring suit
in a district court of the United States to enjoin
any such act or practice. Upon a proper showing
that, weighing the equities and considering the
Commission’s likelihood of ultimate success,
such action would be in the public interest, and
after notice to the defendant, a temporary
restraining order or a preliminary injunction may
be granted without bond: Provided, however,
That if a complaint is not filed within such period
85
(not exceeding 20 days) as may be specified by
the court after issuance of the temporary
restraining order or preliminary injunction, the
order or injunction shall be dissolved by the
court and be of no further force and effect:
Provided further, That in proper cases the
Commission may seek, and after proper proof,
the court may issue, a permanent injunction.
15 U.S.C. § 53(b). Section 13(b) authorizes a court to “enjoin”
antitrust violations. It says nothing about disgorgement, which
is a form of restitution, see Liu v. SEC, 140 S. Ct. 1936, 1940–
41 (2020), not injunctive relief, see, e.g., Meghrig v. KFC W.,
Inc., 516 U.S. 479, 484 (1996) (“[N]either [a mandatory nor
prohibitory injunction] contemplates the award
of . . . ‘damages’ or ‘equitable restitution.’”); Owner-Operator
Indep. Drivers Ass’n v. Landstar Sys., Inc., 622 F.3d 1307,
1324 (11th Cir. 2010) (“Injunctive relief constitutes a distinct
type of equitable relief; it is not an umbrella term that
encompasses restitution or disgorgement.”). Thus, Section
13(b) does not explicitly empower district courts to order
disgorgement.
This interpretation is even stronger in context. Section
13(b) says that, in order to sue, the FTC must have reason to
believe an antitrust violation is imminent or ongoing. See
Shire, 917 F.3d at 156 (holding requirement applies to request
for permanent injunction). This requirement makes perfect
sense as applied to injunctive relief, which prevents or
mandates a future action. See Injunction, BLACK’S LAW
DICTIONARY (rev. 4th ed. 1968). So if a violator’s conduct is
neither imminent nor ongoing, there is nothing to enjoin, and
the FTC cannot sue under Section 13(b). By contrast, the
requirement makes little sense as applied to a disgorgement
86
remedy. Disgorgement deprives a wrongdoer of past gains, see
Liu, 140 S. Ct. at 1940–41, meaning that even if a wrongdoer’s
conduct is not imminent or ongoing, he may have gains to
disgorge. If Congress contemplated the FTC could sue for
disgorgement under Section 13(b), it probably would not have
required the FTC to show an imminent or ongoing violation.
That requirement suggests Section 13(b) does not empower
district courts to order disgorgement.
The FTC’s other enforcement powers also support our
interpretation. Both distinguish between injunctions and other
forms of equitable relief. See 15 U.S.C. § 45(l) (FTC can seek
“mandatory injunctions” and “such other and further equitable
relief” as the court deems appropriate); Id. § 57b(b) (court can
“grant such relief as the court finds necessary to redress
injury,” including but not limited to “the refund of money or
return of property” and “the payment of damages”). The timing
of the enactment of these powers is also instructive. Congress
amended Section 5 to allow “such other and further equitable
relief” at the same time it enacted Section 13(b). See Trans-
Alaska Pipeline Authorization Act, Pub. L. No. 93-153, § 408,
87 Stat. 576, 591 (1973). And it enacted Section 19—which
allows disgorgement only under certain conditions—after
Section 13(b). See Magnuson-Moss Warranty Act, Pub. L. No.
93-637, § 206, 88 Stat. 2183, 2201–02 (1975). Thus, Sections
5 and 19 both show that when Congress wants to empower a
district court to order more expansive equitable relief than
injunctions, it does so. Yet Congress did not do so in Section
13(b).
A contrary conclusion would undermine the FTC Act’s
statutory scheme. Section 13(b) was added in 1973 because the
FTC’s administrative regime moved slowly. See Shire, 917
F.3d at 155. But it is slow-moving for a reason: it affords
87
defendants valuable procedural protections. For example,
Section 5 conditions relief to defendants on an administrative
proceeding and a cease-and-desist order. See 15 U.S.C.
§ 45(b). It also limits the monetary relief the FTC can obtain.
See 15 U.S.C. § 45(l); see also id. § 45(m)(1)(A). Section 19
likewise requires the FTC to promulgate “rules which define
with specificity acts or practices which are unfair,” or initiate
an administrative proceeding to obtain a cease-and-desist
order. Id. § 57a(a)(1)(B)–(2). By contrast, Section 13(b) does
not incorporate these same protections: it grants the FTC a
cause of action to seek a preliminary injunction in federal court
without first pursuing administrative adjudication or
rulemaking; and it imposes no limits on the amount of any
monetary relief the FTC may be able to obtain. Thus, our
interpretation does not “eviscerate” the FTC Act; it harmonizes
its provisions.
The FTC counters that Section 19 has a savings clause.
That clause states: “Remedies provided in this section are in
addition to, and not in lieu of, any other remedy or right of
action provided by State or Federal law. Nothing in this section
shall be construed to affect any authority of the Commission
under any other provision of law.” 15 U.S.C. § 57b(e). But
“[t]he saving clause preserves only those remedies that exist. It
does not inform the question whether section 13(b) contains an
implied power to award restitution.” FTC v. Credit Bureau
Ctr., LLC, 937 F.3d 764, 775 (7th Cir. 2019).
The FTC argues the interpretation we adopt goes
against the weight of precedent. It notes that seven of our sister
courts have held courts may order disgorgement under Section
13(b), and we acknowledged as much in the footnote of a not-
precedential decision. FTC Reply Br. 88 (quoting FTC v.
Magazine Sols., LLC, 432 F. App’x 155, 158 n.2 (3d Cir.
88
2011)). That is true, but until recently, “[n]o circuit ha[d]
examined whether reading a restitution remedy into section
13(b) comports with the FTCA’s text and structure.” Credit
Bureau, 937 F.3d at 785 (describing the precedents); see also
id. (quoting United States v. Hill, 48 F.3d 228, 232 (7th Cir.
1995) (“We are not merely to count noses. The parties are
entitled to our independent judgment.”)). Moreover, today’s
result is consistent with the recent ruling of the United States
Court of Appeals for the Seventh Circuit, which, in a thorough
and well-reasoned opinion, overturned its precedent
authorizing restitution under Section 13(b). Credit Bureau
Center, 937 F.3d at 764; see also FTC v. AMG Capital Mgmt.,
LLC, 910 F.3d 417, 429 (9th Cir. 2018) (O’Scannlain, J.,
specially concurring). Finally, our decision in Magazine
Solutions does not bind us. See I.O.P. 5.7. Even if it did, the
part of the footnote on which the FTC relies was dictum
because the litigant forfeited the issue by failing to raise it in
the district court. See 432 F. App’x at 158 n.2.
Next, the FTC argues Congress has “twice ratified the
consistent understanding of the courts of appeals”—first in
1994, when Congress expanded the venue and service-of-
process provisions of Section 13(b), see FTC Act Amendments
of 1994, Pub. L. No. 103-312, § 10, 108 Stat. 1691, 1695–96
(1994); and second in 2006, when Congress made “[a]ll
remedies available to the Commission . . . including restitution
to domestic or foreign victims” available for certain unfair
practices abroad, see U.S. Safe Web Act of 2006, Pub. L. No.
109-455, § 3, 120 Stat. 3372, 3372 (2006) (amending 15
U.S.C. § 45(a)(4)(B)) (emphasis added). FTC Reply Br. 93.
We disagree. The 1994 amendment did not change the
remedies available to the Commission. So it can hardly be seen
as ratifying our sister courts’ precedents on that issue. And the
89
2006 amendment’s reference to restitution does not mean
restitution is available under Section 13(b); the availability of
restitution under Sections 5 and 19 is well-settled, and the
amendment could have referred to those sections instead.
The crux of the FTC’s counterargument is a pair of
Supreme Court decisions on which our sister courts and the
District Court relied—Porter v. Warner Holding Co., 328 U.S.
395, 398 (1946), and Mitchell v. Robert DeMario Jewelry, Inc.,
361 U.S. 288 (1960). According to the FTC, these decisions
mean Section 13(b)’s use of the word “injunction” impliedly
empowers district courts to order equitable relief in addition to
injunctions. Once again, we disagree.
In Porter, the Supreme Court held a district court could
order restitution under the Emergency Price Control Act of
1942, which authorized the Administrator of the Office of
Price Administration to seek “a permanent or temporary
injunction, restraining order, or other order” in court. 328 U.S.
at 397 (emphasis added). The Court reasoned:
Unless otherwise provided by statute, all the
inherent equitable powers of the District Court
are available for the proper and complete
exercise of that jurisdiction. And since the public
interest is involved . . . , those equitable powers
assume an even broader and more flexible
character than when only a private controversy is
at stake. Power is thereby resident in the District
Court, in exercising this jurisdiction to do equity
and to mould each decree to the necessities of the
particular case. It may act so as . . . to accord full
justice to all the real parties in interest . . . . In
addition, the court may . . . give whatever other
90
relief may be necessary under the circumstances.
Only in that way can equity do complete rather
than truncated justice.
Moreover, the comprehensiveness of this
equitable jurisdiction is not to be denied or
limited in the absence of a clear and valid
legislative command. Unless a statute in so many
words, or by a necessary and inescapable
inference, restricts the court’s jurisdiction in
equity, the full scope of that jurisdiction is to be
recognized and applied.
Id. at 398 (internal citations and quotations omitted). The Court
concluded that “the term ‘other order’ contemplates a remedy
other than that of an injunction or restraining order, a remedy
entered in the exercise of the District Court’s equitable
discretion.” Id. at 399. It noted that no “other provision of the
Act . . . expressly or impliedly precludes a court from ordering
restitution.” Id. at 403.
In Mitchell, the Supreme Court extended Porter. The
Court held a district court could order wage reimbursement
under the Fair Labor Standards Act, which gave courts
jurisdiction “to restrain violations” of the Act. Mitchell, 361
U.S. at 289. The Court said:
When Congress entrusts to an equity court the
enforcement of prohibitions contained in a
regulatory enactment, it must be taken to have
acted cognizant of the historic power of equity to
provide complete relief in light of the statutory
purposes. As this Court long ago recognized,
there is inherent in the Courts of Equity a
91
jurisdiction to . . . give effect to the policy of the
legislature.
Id. at 291–92 (alteration in original) (citation and internal
quotations omitted). It was immaterial that the Act lacked
language, like “other order” in Porter, that confirmed the
court’s power to order reimbursement. See id. at 291 (citations
omitted).
We interpreted Porter and Mitchell in United States v.
Lane Labs-USA Inc., 427 F.3d 219 (3d Cir. 2005). There, we
held a court could order restitution under the FDC Act in part
because the Act empowered district courts to “restrain
violations.” See id. at 223; 21 U.S.C. § 332(a). We explained
Porter and Mitchell “charted an analytical course that seems
fairly easy to follow: (1) a district court sitting in equity may
order restitution unless there is a clear statutory limitation on
the district court’s equitable jurisdiction and powers; and (2)
restitution is permitted only where it furthers the purposes of
the statute.” Id. at 225. We noted “[n]umerous courts have
followed this approach in opining about a court’s power to
order . . . disgorgement under several different statutes.” Id. In
support, we cited, among other authorities, a decision holding
disgorgement is available under Section 13(b). See id. (citing
FTC v. Gem Merch. Corp., 87 F.3d 466, 470 (11th Cir. 1996)).
Following the analytical course that Lane Labs
described, we conclude Section 13(b) does not implicitly
empower district courts to order disgorgement. Unlike the
statutes at issue in Porter, Mitchell, and Lane Labs, Section
13(b) limits the district court’s equitable jurisdiction and
powers because it specifies the form of equitable relief a court
may order. Compare Porter, 328 U.S. at 397–98 (“a permanent
or temporary injunction, restraining order, or other order” in
92
court), Mitchell, 361 U.S. at 289 (“restrain violations”), and
Lane Labs, 427 F.3d at 223 (same) with 15 U.S.C. § 53(b)
(“enjoin”). Moreover, as we have explained, the context of
Section 13(b) and the FTC Act’s broader statutory scheme both
support “a necessary and inescapable inference” that a district
court’s jurisdiction in equity under Section 13(b) is limited to
ordering injunctive relief. Porter, 328 U.S. at 398. So our
interpretation is consistent with Lane Labs and faithful to
Porter and Mitchell.
The FTC counters that in Lane Labs, we cited Gem
Merchandising, which held disgorgement is available under
Section 13(b). But we cited that case solely to support our
approach to applying Porter and Mitchell, and the other cases
we cited involved three different statutes. Lane Labs, 427 F.3d
at 225. We were not interpreting statutes en masse.
For these reasons, we hold district courts lack the power
to order disgorgement under Section 13(b) of the FTC Act. So
the District Court erred in requiring AbbVie and Besins to
disgorge $448 million.
B. The District Court did not abuse its discretion in
denying injunctive relief.
To obtain an injunction, the FTC must show there is a
“cognizable danger of recurrent violation, something more
than the mere possibility which serves to keep the case alive.”
United States v. W.T. Grant Co., 345 U.S. 629, 633 (1953). An
injunction that implicates a defendant’s First Amendment
rights must “burden no more speech than necessary to serve a
93
significant government interest.” Madsen v. Women’s Health
Ctr., Inc., 512 U.S. 753, 765 (1994) (citations omitted).
The FTC sought an injunction:
(1) to prohibit the filing of any claims of patent
infringement based on the ’894 patent by a
product that does not include about 0.1% to
about 5% isopropyl myristate; (2) to prohibit
defendants from filing any other sham litigation;
(3) to prohibit defendants from engaging in any
action that misuses government processes for
anticompetitive purposes; and (4) to require
defendants to certify that any patent
infringement litigation or other use of
governmental processes has an objectively
reasonable basis.
AbbVie, 329 F. Supp. 3d at 144. It also sought an injunction to
“restore competitive market conditions” by compelling
AbbVie and Besins to license AndroGel 1.62% to one or more
generic competitors, and to sell them a supply of the gel until
they could manufacture it themselves. Id. at 145. At oral
argument on appeal, the FTC stated that because the ’894
patent would soon expire, on remand it would not seek to
prohibit the filing of patent infringement claims based on the
’894 patent, Oral Argument January 15, 2020 at 19:15–35;
however, it reaffirmed its interest in a certification
requirement, id. at 15:05–17:55.
The District Court found no basis on which to conclude
AbbVie and Besins’s sham litigations were likely to recur. It
explained the FTC proved only “that defendants filed two sham
infringement lawsuits,” which do not establish a “pattern or
94
practice.” Id. And though the FTC advised the Court that since
suing Teva and Perrigo in 2011, AbbVie and Besins have filed
“numerous other patent infringement suits against competitors,
including seven lawsuits related to the ’894 patent,” the FTC
presented no evidence those lawsuits were shams. See id. at
145 n.31. Moreover, the Court noted generic versions of
AndroGel had been on the market for over three years. See id.
at 145. Finally, the Court held that because the proposed
injunction would have limited AbbVie and Besins’s ability to
file patent infringement suits with respect to any patent, it was
so “overbroad and punitive” that it would violate their First
Amendment rights. See id. (citing Madsen, 512 U.S. at 765).
On appeal, the FTC argues the District Court abused its
discretion because, under the likelihood-of-recurrence test that
governs SEC cases, AbbVie and Besins are likely to engage in
further sham litigation. FTC Br. 48–49 (citing SEC v. Bonastia,
614 F.2d 908, 912 (3d Cir. 1980)). The FTC also argues the
Court’s First Amendment concerns rested on a
mischaracterization of the injunctive relief it requested.
Although its “pretrial brief used broader language,” its
proposed order did not seek to prohibit AbbVie and Besins
from engaging in any action that misuses government
processes. FTC Br. 52 n.13. In any event, the FTC argues its
injunction is constitutional because the certification
requirement and prohibition on sham litigation implicate no
First Amendment rights. Id. at 54. It also cites the “well-
settled” rule that “once the Government has . . . establish[ed] a
violation of law, all doubts as to the remedy are to be resolved
in its favor.” Id. at 55 (citing United States v. E. I. du Pont de
Nemours & Co., 366 U.S. 316, 334 (1961)).
We disagree. Under Grant, the District Court had to
determine whether the likelihood of AbbVie and Besins
95
engaging in sham litigation was a cognizable danger or merely
possible. See 345 U.S. at 633. Even resolving doubts in the
FTC’s favor, for the reasons the Court stated it was well within
its discretion to conclude the FTC had shown a mere
possibility.
Nor did the District Court abuse its discretion by failing
to apply the Bonastia factors, which we have never applied in
FTC Act cases. See 614 F.2d at 908. And we are disinclined to
extend Bonastia here for two reasons. First, our review of the
voluminous record on appeal did not uncover any indication
the FTC argued the District Court should extend Bonastia
outside the SEC context. To the contrary, the FTC’s proposed
findings of fact and conclusions of law relied solely on Grant,
which the District Court applied. To the extent the FTC did not
raise this argument in the District Court, it is forfeited on
appeal. See In Re: J & S Props., LLC, 872 F.3d 138, 146 (3d
Cir. 2017) (citing United States v. Joseph, 730 F.3d 336, 341–
42 (3d Cir. 2013)).
Second, we would not find an abuse of discretion even
if Bonastia applied. Under that decision, courts look to:
[1] the degree of scienter involved on the part of the
defendant, [2] the isolated or recurrent nature of the
infraction, [3] the defendant’s recognition of the
wrongful nature of his conduct, [4] the sincerity of his
assurances against future violations, and [5] the
likelihood, because of defendant’s professional
occupation, that future violations might occur.
96
Bonastia, 614 F.2d at 912 (citation omitted). Although the
Court did not recite these factors mechanically, its rationale
accounted for the substance of all but the third and fourth. And
the antitrust laws afford no relief on the basis of those factors
alone. Cf. Howard Hess, 602 F.3d at 251 (citing Bonastia, 614
F.2d at 912).
Thus, the District Court did not abuse its discretion in
denying injunctive relief.
C. Remand on the reverse-payment theory is not
futile.
AbbVie and Besins argue that remand to allow the FTC
to proceed on the reverse-payment theory would be futile for
several reasons. None is persuasive.
First, AbbVie and Besins argue the FTC will not be able
to show they “[are] violating, or [are] about to violate” the
antitrust laws. AbbVie Br. 91 (quoting 15 U.S.C. § 53(b)). But
in Shire, we held that whereas Section 13(b) of the FTC Act
requires a plaintiff to plead the defendant “is violating” or is
“about to violate” the antitrust laws, the likelihood-of-
recurrence standard “applies when a court is considering
whether to grant or deny injunctive relief.” 917 F.3d at 158.
Second, AbbVie and Besins argue disgorgement would be
inappropriate, both because Section 13(b) does not authorize it
and because the District Court found, in calculating the amount
of disgorgement, that Teva would not have marketed its
generic gel even without the sham litigation. See AbbVie, 329
F. Supp. 3d at 140 (“[T]he FTC has not established that, but for
defendants’ sham litigation, Teva would have launched its
product on June 2012 or at any time thereafter.”). We agree
that disgorgement is inappropriate because Section 13(b) does
97
not authorize it. But because we cannot say, based on the
pleadings alone, that the Court would abuse its discretion by
granting the FTC injunctive relief, remand is not futile.
Consistent with our holding in Shire, the District Court should
apply the likelihood-of-recurrence standard. See 917 F.3d at
158. Apart from that instruction, the District Court retains
discretion to determine whether the FTC is entitled to an
injunction if it ultimately succeeds on the reverse-payment
theory.
Finally, at oral argument before our Court, counsel for
AbbVie argued for the first time that the District Court’s
finding that Teva would not have marketed its generic gel
without the sham litigation means that, on remand, the FTC
will be unable to show antitrust injury, which is an element of
every antitrust claim. See generally Wellbutrin, 868 F.3d at
164–65; Oral Arg. 29:10–36:25. Arguments not briefed are
forfeited on appeal. See Griswold v. Coventry First LLC, 762
F.3d 264, 274 n.8 (3d Cir. 2014) (citation omitted). Regardless,
we think that on remand, the Court must consider anew its
finding that Teva would not have marketed its generic gel
without the sham litigation. The FTC plausibly alleged AbbVie
paid Teva a large, unjustified reverse payment to delay its entry
into the market for AndroGel.
* * *
For the reasons stated, we will reverse the District
Court’s order granting the motion to dismiss Count I in part
and to dismiss Count II. We will also affirm the Court’s order
adjudging AbbVie and Besins liable for monopolization under
Count I based upon its holding that the suit against Perrigo was
a sham. Finally, we will affirm the Court’s order denying
98
injunctive relief, reverse the Court’s disgorgement order, and
remand for further proceedings consistent with this opinion.
99