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Phase number 22-5137, Federal Trade Commission, the balance versus endo-pharmaceuticals and et al.

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Mr. Hegades for the balance, Mr. Gordon for the appellees, endo-pharmaceuticals et al.

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Mr. Lacovitz for the appellees, impacts laboratories, LLC et al.

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Morning, Council.

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Mr. Hegades, please proceed when you're ready.

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Good morning, Your Honors.

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May it please the Court, Mark Hegetus, for the Federal Trade Commission.

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When a company with a pre-existing right to compete agrees with a competitor to eliminate competition between them, that agreement could be subject to antitrust scrutiny.

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The FTC's complaint charges that endo and impacts entered into that kind of an agreement.

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In 2017, the companies decided that rather than vote selling upon an ER, they would agree that ENDO would exit the market, stay off the market, and they would share the resulting monopoly profits.

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That agreement harmed competition and it harmed consumers.

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And the FTC should have the opportunity to show that that agreement violated the antitrust laws.

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The district court should not have dismissed the FTC's complaint for two basic reasons.

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First, the court was wrong to conclude that the agreement was simply an exercise of Endo's patent rights.

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The complaint plausibly alleged that Impacts already had a broad, risk-free, non-exclusive license.

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Under the guise of an exclusive license, however, Impacts purchased an unlawful monopoly.

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Second, the district court wrongly concluded that the FTC did not state an antitrust claim because the Patent Act permits patentees to grant exclusive licenses.

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But the Supreme Court has made clear that patent settlement agreements are subject to rule of reason review, just like other restraints of trade.

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And the FTC should be permitted to show that the 2017 agreement is unreasonable under the rule of reason.

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Can I ask you just an upfront question?

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And that is, your complaint charged impacts a loan.

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with violating section two of the Sherman Act.

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But your arguments to us have not distinguished between impacts and ENDO.

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So for purposes of your appeal here, there's no difference between the two of them.

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The complaint charges that impacts and ENDO violated section one.

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Correct, but only impacts on section two.

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In terms of the unlawful monopolization, section two runs just to impacts.

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Um, the, because impacts is the one who enjoys the monopoly as a result of the agreement and the agreement itself is the exclusionary conduct that we alleged that violates section two.

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But you're correct, your honor.

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Count one, the section one count is against both endo and impacts, but the second two count is against impacts alone.

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Yeah.

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As your brief here hadn't broken out the second.

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a distinct liability for alleged liability to be clear for for impacts.

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I take it your theory is because that just grows out naturally from if the section one claim goes forward, then the fact that impacts would be the one receiving the monopoly, i.e.

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having the section two claim would come from that.

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So that's why you didn't break them out separately here.

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That is correct, Your Honor.

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The exclusionary conduct on which we rely is the agreement itself.

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If we're unable to

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prove that that agreement is a violation of the antitrust laws, is anti-competitive, then we can't proceed with our Section 2 claim, because that agreement is the exclusionary conduct that is one of the requirements for a Section 2 claim.

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I just wanted to make sure about that, okay.

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Yes.

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I'm sure I understood that right.

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So with respect to and IMPACT's ability to be on the market, the 2010 license gave IMPACT's this broad, non-exclusive,

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right to compete with license and it was royalty free and impacts was on the market.

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That allegation complaint stems right from the license itself.

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It also reflects the party's characterization of that license made in two separate federal proceedings.

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In those one proceeding in the Northern District of Illinois,

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Endo told that court that the agreement was a right to compete agreement which allowed impacts to be on the market risk-free.

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Before the Federal Trade Commission, impact represented that this agreement was a broad license and it allowed impacts to be on the market.

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Both of those representations were in fact made after

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ENDO filed its suit against IMPACS in 2016.

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That was noted at IMPACS's position in the litigation, including the 2016 litigation.

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But it was disputed, at least at that point in time, by ENDO.

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And so ENDO survived a motion to dismiss and IMPACS is facing

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trouble damages, which would be crippling to anybody.

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That's the point of trouble damages.

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And so there was, it's right to stay on the market was in question.

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What is suspicious?

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What can we as a matter of law say would allow an inference of anti-competitive conduct for the two of them to resolve that disagreement and to do so in a way that actually

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create gives impact something that didn't have before and that is an exclusive license and a non compete agreement from end up.

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Your honor, there are several parts to my response to that question.

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The first is that it was inappropriate to resolve that dispute in as part of the ruling on the motion to dismiss and the district court effectively bought

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and impacts this version of the dispute of the dispute between us and it was our complaint and the complaint was could have been given the allegations of the complaint should have been construed in our favor.

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But secondly, when you just make sure and I do want to hear you listen.

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So sorry to interrupt.

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I'm not sure I even understand point one.

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It was improper for them to settle after the motion to dismiss.

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It couldn't settle after the motion.

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I'm sorry.

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I'm sure I miss.

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I miss heard you.

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I'm sure.

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And I'm sorry if I suggested that it was improper for them to settle after the motion to dismiss, but rather the fact of that dispute, um, does not provide a basis to not accept as plausible the allegations in our complaint.

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And so the motion to dismiss in our case should have been decided based upon the allegations in the complaint.

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not based upon the fact that there was this legal dispute between endo and impacts.

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Now, with respect to that case, we also plausibly alleged that the endo suit did not seek to take impacts out of the market.

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The suit was about the appropriate royalty.

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You can examine the

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Complaints itself, and it's all about the royalty.

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There's no indication that Endo was trying to take impacts off the market.

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In addition, Endo did not seek to enjoin impact from making those sales when it filed that suit.

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And even if Endo had succeeded in that suit,

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the chances of it succeeding and taking impacts off the market were low or would have been a difficult case for Endo to make because it would have to have shown that it was irreparably harmed if

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it had to meet the standards or the traditional standards for an injunction.

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And that comes from the Supreme Court's decision in eBay.

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So the hurdles to end up being able to take impacts off the market were substantial, which supports why the court should not have credited the existence of that dispute as grounds to not accept as true

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for allegations that the complaint plausibly alleged that impacts had a right to be on the market.

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And that's an important allegation because it goes to the anti-competitive effects of this agreement.

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This was an agreement between competitors.

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They agreed that one of them would not compete, and they would share monopoly profits.

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Could you always say that whenever there's a patentee that enters into an agreement with a licensee to license the patent, they're potentially competitive, and the patentee can grant a license to the licensee in exchange for royalty.

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That's just garden variety stuff that happens all the time, as I understand it, the patents here.

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Your honor, it does happen all the time in the patent sphere, although many of those agreements are between patentees and licensees who are not competitors.

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They stand in a vertical relationship where, for some reason, the patentee determines... Well, let's suppose it's not.

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Let's suppose it's not of what you're characterizing as a vertical arrangement.

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Let's just suppose it's just a situation in which there's a manufacturer for product and then there's somebody who could make a generic.

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And so there, I think those are horizontal.

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And then there's just an agreement.

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The manufacturer of the product who holds the patent centers into an agreement with the potential producer of the generic and just says, look, we'll license you the patent.

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And in exchange for that, pay us a royalty.

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And it's an exclusive license.

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Let's just make it even more exclusive than this is.

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It's as exclusive as it can be.

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We're not going to get into this space.

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We're giving it to you.

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But you're going to pay us a royalty.

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That just seems like that's standard fare.

[00:11:16] Speaker 06:
Your honor, that is not standard fare.

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That in a way describes...

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possible alternative agreement that could have been entered into the activist case itself.

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And I see, Your Honor, that beyond my initial 10 minutes, I reserve five minutes for rebuttal, so I just want to acknowledge that.

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We'll give you some rebuttal time, but you should keep answering questions as long as we ask them.

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Okay.

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Yes, Your Honor.

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Thank you.

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I just want to acknowledge my time limit.

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Of course.

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So suppose an activist, rather than the

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generic agreeing to stay out of the market for a share of the brand's monopoly profits, the agreement had been that the generic wouldn't enter the market, the brand would exit, the generic would pay a portion of it, split the royalties, split its revenues with the brand as a royalty.

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That agreement,

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is anti-competitive in the same way that the agreement in the actual activist case is anti-competitive.

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You have two competitors coming together, agreeing that only one of them will compete and then they will share the resulting monopoly profits.

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I thought the patent statute just allows the patent holder to grant a license.

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Isn't that a basic part and parcel of having the patent, is that you can license it and exclusively license it?

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And I take it that this is how an exclusive license works, is that you grant an exclusive license in exchange for granting the exclusive license to get something.

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And one thing that seems readily conceivable that you would get is a payment of a royalty.

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It does allow that, but after this holds,

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as did a long series of cases that preceded activists, but that kind of agreement, if it has anti-competitive effects, should at least be examined under the anti-trust laws.

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And that's all we're asking here.

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But I thought the activists thought that, at least in part because of what it viewed to be the peculiarities of a reverse payment arrangement.

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But what I'm hypothesizing I think doesn't fit within

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that description, it's just the standard situation in which a patent holder grants a license and make it an exclusive license to make it as anti-competitive as possible in the way that I think you're perceiving the world.

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And in exchange for granting the exclusive license, the licensee pays it well.

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Economically, you're on the situation.

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Your hypothetical and the situation activists are the same in that

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competitors where there's some doubt about one of them to be on the market agrees that one of them will stay off the market and they will share the resulting monopoly profits.

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So whether that is achieved by the brand thing on the market and then paying the

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generic to stay off the market or the generic coming onto the market and the brand coming off the market for a share of the royalties, the economic effect is the same.

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Under your position going forward, no patentee

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could undertake, say in 2010, they had just done, they had taken what they did in 2010, 2017, just did it all in 2010.

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They just issued, they agreed to an exclusive license, non-compete agreement, exclusive license, compensation for royalties in 2010.

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They just did it all at once.

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That they and no other patent holder in this country who does an exclusive licensing agreement with a

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competitor, potential competitor, is in the pharmaceutical area, right, with a brand and a generic.

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Those can never be assumed going forward to be within the patent power.

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Because just to throw on the table, an activist, part of what the court was concerned about was the weirdness of the patent holder

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sort of paying off and giving, paying the competitor and that there was concern that that suggested the fragility or concerns about the patent and whether it would fail the invalidity challenge, which you don't have here.

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This patent has survived invalidity challenges right and left.

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So you've got a good strong patent here.

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So to assume in 2010, they had made an exclusive licensing agreement in 2010, one fell swoop,

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non-compete agreement, exclusive license, but strong pact.

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We know it's a strong pact.

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And royalty payments.

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They couldn't assume going forward that that would be okay.

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Every one of those agreements is going to have to be subject to rule of reason analysis.

[00:16:30] Speaker 06:
Your Honor, it is potentially subject to the rule of reason analysis, but there are several responses to the hypothetical you posed.

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I'm assuming that in that initial 2010 agreement that the two parties in fact were competitors or potential competitors.

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for only potential in the sense that it's happened here, but this goes on.

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Activists was pharmaceuticals too, and that is using Hedge Waxman.

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The generic says, I want to come on the market.

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I'm the first filer.

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I want to come on the market, get my 180-day period of generic exclusivity.

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And to do that, I have to file this form that essentially says, I think your patent's in doubt.

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So it's the sort of statutory thing.

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So yes, there's certainly definitely competitors, potential competitors.

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Yes, Your Honor.

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And that relationship really does make a difference in the antitrust analysis.

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But more fundamentally, the rule under activists, which itself is based upon a long series of cases, is that the mere possession of a patent or the mere exercise of the patent rights does not

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immunize an agreement from antitrust scrutiny.

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Now, it may be that many agreements are not a problem under the antitrust laws because perhaps the patent itself does not give the patentee market power in an economic sense.

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So the patent does not give the patentee monopoly power in the economic sense.

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It only gives it monopoly over the patented product.

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Another issue is the competitive effects analysis itself, which is very important.

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So there are many agreements that would escape antitrust scrutiny.

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And that's really the ordinary exclusive licensing situation that's been posited here by a number of your honors.

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But what is different?

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Just to be clear, had they done the same, had they done in 2010 what they accomplished

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If you combine 2010 and 2017, if they had just done the exclusive, instead of doing a licensing agreement, but it wasn't exclusive until 2017, but in 2010 instead, they had just done the exclusive licensing agreement upfront, it'd be no better off.

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It would be in the same, we'd be hearing the same challenges.

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If we could make a case that,

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impacts in that situation, that Derek in that situation was a legitimate competitor on the market of potential competitor, right?

[00:19:09] Speaker 06:
Right.

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In that case, that agreement would be subject to add to trust scrutiny.

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Um, it would not, it certainly would not enjoy immunity.

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Um, under the, how would it be any different?

[00:19:21] Speaker 01:
I'm sorry.

[00:19:22] Speaker 01:
How would it be any different?

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How would your claims be any different?

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Under my hypothetical, will you just upfront do an exclusive licensing agreement and what you have here?

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It would be the same?

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Economically, it would be the same.

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I don't mean economically.

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Legally, would it be the same?

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It would be in the same legal boat?

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Yes, Your Honor.

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Yes, Your Honor.

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Antitrust is guided by economic realities, and in both the hypothetical agreement, where impasse is the monopolist, is the only one on the market, or

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Excuse me and yeah impacts at the outset or this agreement where it happened after impacts have been on the market had a right to be on the market pursuant to the 2010 agreement you have.

[00:20:11] Speaker 01:
So the fact that it's important to me what you just said.

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So the fact that they were already on the market by 2017, which you talked about a lot in your brief, actually doesn't matter for your antitrust theory.

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All that matters is that Endo gave impacts and at the end of the day, we add it all up, Endo gave impacts and exclusive licensing agreements.

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Endo said, and non-compete, right?

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Endo's out.

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That's all that matters.

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And then that can always be challenged and you'll win, maybe lose, but that can always be challenged under the rule of reason analysis because of it.

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Great monopoly.

[00:20:53] Speaker 05:
Yes.

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Because they are in a horizontal relationship.

[00:20:56] Speaker 05:
I'm surprised because I, um, I thought that the theory that your theory, and I'm not saying that necessarily that this theory would necessarily work.

[00:21:05] Speaker 05:
I'm not saying it doesn't work either.

[00:21:07] Speaker 05:
But I thought your theory was bottomed in the existence of the 2010 agreement as the predicate and the 2017 agreement only becomes problematic by virtue of the 2010 agreement.

[00:21:20] Speaker 05:
But it sounds like your view based on your answers to Judge Mollett's questions and the questions that I was posing earlier is that actually 2010 turns out not to matter because all that matters is that at the end of the day there was the grant

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by one patent holder to a potential competitor of an exclusive license.

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And once you have the grant of an exclusive license, then what that does is it reduces the field of competition because these two entities could be in competition.

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Now it turns out only one of them is gonna be producing.

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That creates anti-competitive consequences because prices can potentially go up, which of course they can whenever there's a monopoly, and that's anti-competitive.

[00:22:00] Speaker 05:
So it sounds like it doesn't matter that this happened in two steps.

[00:22:03] Speaker 05:
Because if it all happened in one step, it would be the end.

[00:22:05] Speaker 05:
I think there's something to that, that it would be economically the same thing.

[00:22:08] Speaker 05:
And that was going to raise some questions about why should we draw a distinction if it goes between two steps, goes sequentially one step to two, or if it just collapses into one.

[00:22:17] Speaker 05:
But it sounds like you're now just saying, it actually doesn't matter that it happened sequentially.

[00:22:22] Speaker 05:
What matters is that at the end of the day, there's the grant of an exclusive license.

[00:22:26] Speaker 05:
And that's subject to rule of reason scrutiny, period, after activists.

[00:22:30] Speaker 06:
Yes, Your Honor, there is an important difference just in terms of how it is that Impacts is a competitor in the two circumstances.

[00:22:39] Speaker 06:
In the original 2010 or their dispute that led to the 2010 license, Impacts was threatening those patents.

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There was a patent challenge through the validity of those patents.

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that war that those were the relevant facts as to why impacts was a competitor.

[00:23:01] Speaker 06:
In 2017, impacts is on the market because it received this license in 2010.

[00:23:07] Speaker 06:
And it's important to bear in mind that what a license is a license.

[00:23:14] Speaker 05:
But then this line of

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reasoning, as I understand it, is predicated on what impacts got in 2010.

[00:23:23] Speaker 05:
Maybe I've missed this whole exchange, but I thought in response to the questions that we're posing to you, theoretically, it doesn't matter that impacts got anything in 2010.

[00:23:33] Speaker 05:
All that matters economically and legally under the anti-stress laws after activists is that a monopolist patent holder granted an exclusive license to a potential competitor.

[00:23:44] Speaker 05:
Once you have that, that's subject to antitrust scrutiny after activists.

[00:23:48] Speaker 05:
And if that's true, then what you were starting to say and what I thought your brief focused on in your complaint is predicated on actually doesn't matter because the 2010 agreement, everything that happened in 2017 could happen all the time between a patent holder and the producer of a generic who wants a license to make the generic.

[00:24:07] Speaker 05:
And you're saying that that gives rise to antitrust scrutiny under the rule of reason.

[00:24:13] Speaker 05:
arrangement just gives rise to it because it's anti-competitive in that it's a monopolist patent holder who's granting an exclusive license to a potential competitor that reduces the field of competition, ergo rule of reasons group.

[00:24:26] Speaker 06:
Yes, Your Honor.

[00:24:28] Speaker 06:
How we get to that position, you know, you could have had the hypothetical that

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parties entered into this agreement from the get-go, that would be an antitrust problem.

[00:24:40] Speaker 06:
And the same antitrust problem.

[00:24:42] Speaker 05:
It would be the same one as if 2010 never happened.

[00:24:44] Speaker 06:
The facts of how they got there are relevant in terms of understanding the purpose of this agreement.

[00:24:55] Speaker 06:
I'm not saying that the facts are irrelevant.

[00:24:57] Speaker 06:
We do need to consider them as part of the rule of reason analysis.

[00:25:02] Speaker 06:
But at the end of the day, the economic effect is you have two competitors deciding that one of them will not compete and they will share the monopoly profits.

[00:25:13] Speaker 06:
And they do that in settlement of a dispute.

[00:25:17] Speaker 05:
So when a patent holder, if a

[00:25:19] Speaker 05:
The patent holder has a monopoly, right?

[00:25:21] Speaker 05:
I mean, I think it's just taken as a given that a patent gives a monopoly.

[00:25:27] Speaker 05:
Over the patented product, Your Honor.

[00:25:29] Speaker 05:
Right.

[00:25:29] Speaker 06:
At the time this agreement was entered into, the 2017 agreement, the patent, Endo's patent, could not exclude impact.

[00:25:39] Speaker 06:
A patent is a right to exclude.

[00:25:42] Speaker 06:
So, uh, but by giving the agreement, uh, the 2010 license and it can no longer exclude impacts.

[00:25:50] Speaker 06:
That proposition is recognized in this court's case, which is discussed a lot in the party's brief, the student gazelle site, polar case or SK for short.

[00:26:00] Speaker 06:
When you, when a panty gives a license to a licensee, um, it can no longer keep that licensee off the market.

[00:26:09] Speaker 06:
And so that distinguishes this situation from a situation where a licensee had no ability to be on the market.

[00:26:19] Speaker 06:
And so that's what makes this particular situation unique and different from what we call the board.

[00:26:26] Speaker 01:
It doesn't seem to matter because I thought, if I understood your questions earlier, that

[00:26:34] Speaker 01:
doesn't matter because even had they never, if impacts had never been on the market, they just upfront in 2010 said, right, you know, you've challenged my patent, you're doing the Hatch-Waxman thing, I get it.

[00:26:49] Speaker 01:
We're going to do a settlement agreement right now in 2010 that says, you can go on the market for the first time.

[00:26:58] Speaker 01:
And you go on exclusive.

[00:27:01] Speaker 01:
And you have that exclusive market, even as against me, the patent holder, until the end of the patent's life.

[00:27:10] Speaker 01:
We'd be in the same boat.

[00:27:11] Speaker 01:
You'd have the same issues.

[00:27:12] Speaker 01:
You'd have some different facts.

[00:27:15] Speaker 01:
Maybe intense, a little hard to prove.

[00:27:16] Speaker 01:
I don't know.

[00:27:17] Speaker 01:
But you legally, they are in the same boat because you have two competitors agreeing

[00:27:25] Speaker 01:
not to compete and to instead create a monopoly from which they both benefit?

[00:27:30] Speaker 06:
That is correct, Your Honor.

[00:27:32] Speaker 06:
And it's a concern because at that point, the monopoly is not coming from the patent.

[00:27:37] Speaker 06:
The economic monopoly is not coming from the patent.

[00:27:40] Speaker 06:
It is coming from the party's agreement.

[00:27:43] Speaker 05:
It is coming from the patent because somebody is going to exploit the patent.

[00:27:48] Speaker 05:
The patent holder can.

[00:27:49] Speaker 05:
Nobody disputes.

[00:27:51] Speaker 05:
You don't get antitrust scrutiny if the patent holder decides not to license.

[00:27:55] Speaker 05:
Right?

[00:27:56] Speaker 05:
The patent holder just decides to practice the patent.

[00:27:59] Speaker 05:
I don't even know if I'm using correct purvish in the IP space.

[00:28:02] Speaker 05:
I don't know.

[00:28:03] Speaker 05:
I don't know that space, but if the patent holders just decides to, I think, practice the patent and then produce the product, that's not subject to antitrust.

[00:28:15] Speaker 05:
No, and that's so then if the patent, if that's true, then if the patent holder just says, okay, I'm not going to do it, you're going to do it.

[00:28:23] Speaker 05:
and I'm not gonna get in that space.

[00:28:24] Speaker 05:
It's just you're gonna substitute for me.

[00:28:26] Speaker 05:
Isn't that the exact same thing?

[00:28:29] Speaker 05:
No, Your Honor.

[00:28:31] Speaker 06:
There are two components to my answer to your question.

[00:28:35] Speaker 06:
The first is that the patent monopoly granted by the Patent Act doesn't mean that the patentee gets exercise monopoly in the marketplace in the antitrust sense.

[00:28:47] Speaker 06:
It may be that there are products that compete with the patented product.

[00:28:53] Speaker 06:
And that's significant here because Impacts had this license.

[00:28:59] Speaker 06:
Impacts had a product that competed with Endo's patented product.

[00:29:05] Speaker 06:
And so Impacts was no longer within the exclusionary potential of Endo's patent.

[00:29:13] Speaker 06:
So it's just not a mere exercise.

[00:29:16] Speaker 01:
Now you're getting into separating the 2017 from the 2010.

[00:29:23] Speaker 01:
And I thought your answer was pretty clear to me that it wouldn't matter whether impacts was already on them.

[00:29:29] Speaker 01:
What matters is that two competitors have put their heads together and created a monopoly, an exclusive, I mean, it's almost, I'm being redundant here, an exclusive, but a really locked in monopoly.

[00:29:45] Speaker 01:
with a non-compete agreement.

[00:29:47] Speaker 01:
And you've got, unlike activists, you've got every sign, this is a good, solid patent.

[00:29:52] Speaker 01:
It's been held up many times.

[00:29:53] Speaker 01:
There's no reason to think anyone else is going to be able to break it.

[00:29:56] Speaker 01:
It's a good, solid patent.

[00:29:59] Speaker 01:
It doesn't matter that Endo was already in the market, I think, under your theory.

[00:30:02] Speaker 01:
The fact is, you've got the two competitors agreeing to create this monopoly, lock it in, and share the profits.

[00:30:08] Speaker 01:
And we'll send that price soaring up.

[00:30:10] Speaker 01:
And we're going to share those profits.

[00:30:12] Speaker 06:
So, Your Honor, I was attempting and perhaps did not do a good job of addressing Judge Trina Basin's question about the impact of the patent.

[00:30:20] Speaker 06:
And doesn't that just give this right to monopoly?

[00:30:23] Speaker 06:
And the fact is, it provides the ability for the patentee to

[00:30:29] Speaker 06:
have a monopoly over the patented product.

[00:30:31] Speaker 06:
But it may be that there are products that do not infringe that patent.

[00:30:36] Speaker 06:
So going back to your hypothetical, Judge Millett, yes, a very solid patent in terms of having been found valid in multiple cases.

[00:30:45] Speaker 06:
And in fact, there are multiple cases here.

[00:30:48] Speaker 06:
But it's not just patent validity that matters.

[00:30:51] Speaker 06:
If you read activists, they also talk about patent infringement.

[00:30:56] Speaker 06:
And a concern arises is if there is the removal of uncertainty regarding infringement, and you remove that uncertainty by entering into an agreement not to compete and to share the resulting monopoly profits, that's also an antitrust concern.

[00:31:19] Speaker 06:
So that's what was going on here, Your Honor.

[00:31:21] Speaker 01:
But under this agreement, you could still have

[00:31:26] Speaker 01:
other drugs come in that can compete.

[00:31:30] Speaker 01:
As long as they don't infringe the patents, you've got the same, no, they've got no ability to wall off, you know, a panel like but not infringing products.

[00:31:48] Speaker 01:
So it's exactly the same as my do it all in 2010.

[00:31:52] Speaker 01:
pathetically there or in this two step that's happened here.

[00:31:56] Speaker 01:
They've created a monopoly over a Pana or the generic equivalent of it.

[00:32:04] Speaker 01:
Um, the extended release, um, generic that that's that's locked down and that seems pretty solid, but the ability to compete around it remains the same, whether it's a 2010 agreement or a 27 or 2010 plus 2017 agreement.

[00:32:21] Speaker 06:
Your Honor, we would need more information about the relevant market and whether, in fact, there were other products that competed, could compete against O'Pona ER without infringing the O'Pona.

[00:32:36] Speaker 01:
Is your theory in this case that the 2017 agreement went beyond somehow and somehow prevents competition even of products

[00:32:51] Speaker 01:
that would not infringe the patent?

[00:32:53] Speaker 01:
Am I misunderstanding you all this time?

[00:33:00] Speaker 06:
Yes, Your Honor.

[00:33:01] Speaker 06:
If we define the market as the market for APANA and generic versions of APANA, this agreement affects that marketplace.

[00:33:14] Speaker 06:
Now, there could be another set of facts.

[00:33:16] Speaker 01:
The whole point of generic is that it's equivalent.

[00:33:18] Speaker 01:
I'm sorry, Your Honor?

[00:33:19] Speaker 01:
The whole point of a generic is that it's equivalent.

[00:33:22] Speaker 01:
That's right.

[00:33:22] Speaker 01:
And it would infringe the patent, right, to do it.

[00:33:28] Speaker 01:
The first year APANO was out, Nando was marketing it.

[00:33:30] Speaker 01:
If someone came up with a generic bioequivalent drug and marketed, they would have infringed the patent.

[00:33:38] Speaker 06:
Yes, unless they had a license.

[00:33:39] Speaker 01:
Right, without the license.

[00:33:40] Speaker 06:
The way the impacts had a license.

[00:33:41] Speaker 06:
For sure, for sure.

[00:33:42] Speaker 01:
Right.

[00:33:42] Speaker 01:
Right.

[00:33:43] Speaker 01:
So all that's been locked down, as I understand it, between the 2010 and 2017 agreements put together is APANO

[00:33:52] Speaker 01:
and it's generic equivalent, that's locked down, right?

[00:33:59] Speaker 01:
And you say that is.

[00:34:00] Speaker 06:
So the agreement creates a monopoly in that market because impacts had this license to be on that market without infringing.

[00:34:11] Speaker 05:
I don't understand the concern about non-infringing products because I thought all the license gives

[00:34:19] Speaker 05:
is a license by definition only makes sense with respect to something that could infringe.

[00:34:26] Speaker 05:
If it's not infringing, then you don't need a license anyway, because you're not infringing the patent.

[00:34:31] Speaker 05:
So isn't whatever was being licensed in 2010 and 2017, aren't we presupposing that the license is coterminous with the scope of the patent?

[00:34:43] Speaker 05:
Why are we even talking about non-infringing products?

[00:34:45] Speaker 05:
Because they don't need a license.

[00:34:47] Speaker 05:
Do you?

[00:34:48] Speaker 06:
When we think about a scope of the patent, Your Honor, we think about its exclusionary potential.

[00:34:52] Speaker 06:
And once a patentee grants a license to a licensee, it can no longer exclude the licensee.

[00:35:01] Speaker 05:
And so at that point, the... But it could never exclude the licensee if the licensee weren't infringing anyway.

[00:35:10] Speaker 05:
I'm sorry, could you repeat the question?

[00:35:11] Speaker 05:
It could have never excluded the licensee if the licensee weren't infringing anyway.

[00:35:17] Speaker 05:
because then the license is irrelevant.

[00:35:19] Speaker 05:
If I make a product that doesn't infringe a patent, I don't need a license to make the product because I'm not worried about it.

[00:35:26] Speaker 06:
And in that situation, Your Honor, if the patentee agreed with the competitor who produces a product that does not infringe, that very much is an antitrust concern and should be subject to rule of reason analysis.

[00:35:39] Speaker 06:
In effect, that's what we have here.

[00:35:41] Speaker 06:
Impacts as sales of the generic

[00:35:45] Speaker 06:
do not infringe the endo patent because of the license.

[00:35:49] Speaker 06:
As this court recognized in its SK decision, when a patentee grants a license, the patentee can no longer exclude the licensee.

[00:36:00] Speaker 06:
At that point, the licensee becomes like a competitor in the marketplace.

[00:36:04] Speaker 06:
And so here you have those two competitors coming together.

[00:36:08] Speaker 06:
agreeing to share monopoly profits and consumers pay the price.

[00:36:12] Speaker 06:
And we just seek the opportunity to show that that agreement violates the antitrust laws, that an agreement like that is not immunized from antitrust scrutiny.

[00:36:21] Speaker 02:
Okay.

[00:36:22] Speaker 02:
I just wanted to add to this is under a 12b6 and we haven't talked about it all in Plum.

[00:36:27] Speaker 02:
And should this have been analyzed by the district court with respect to the elements of the Sherman Act from sections one and two?

[00:36:35] Speaker 06:
I didn't hear quite the last aspect of your question.

[00:36:38] Speaker 02:
I'm sorry.

[00:36:39] Speaker 02:
I mean, we're here on the 12b6, and so Iqbal Twombly could come into play, but we just haven't spoken about that in terms of whether or not the district court should have analyzed the allegations with respect to Section 1 and 2 of the Sherman Act.

[00:36:53] Speaker 06:
Right, Your Honor.

[00:36:53] Speaker 06:
And our argument in our brief is that the district court failed to do that.

[00:36:59] Speaker 06:
It failed to credit and accept as true our allegations about the license, about the representations that Endowed Impact made regarding that license, about the right it gave impacts to be on the market, but instead left ahead

[00:37:19] Speaker 06:
and ruled based upon the party's justifications for why they should be allowed to do this.

[00:37:26] Speaker 06:
They put forward that, well, we had this dispute, we should be allowed to do that.

[00:37:30] Speaker 06:
Well, the parties in the rule of reason analysis will have the opportunity to forward their justifications as part of the rule of reason analysis.

[00:37:38] Speaker 06:
in step two of that rule of reason analysis.

[00:37:42] Speaker 06:
But we, as plaintiffs, have no obligation at the motion to dismiss stage to disprove parties' pro-competitive justifications.

[00:37:53] Speaker 06:
So, just with respect to if-fall swamblee, the district court did not, uh,

[00:38:00] Speaker 06:
uh, assume our alleged facts is true and rule on that basis.

[00:38:04] Speaker 06:
Instead, it jumped ahead and ruled based upon, rejected the patent, excuse me, rejected, granted the motion to dismiss based upon the party's, um, basically the party's justifications for this agreement.

[00:38:18] Speaker 06:
And that only happens once we get to page two of the rule of a reason analysis.

[00:38:22] Speaker 06:
And we'd like that opportunity to actually get to that stage as part of the, uh, hopefully a remand if you agree with us that the district court aired here.

[00:38:30] Speaker 01:
And in your complaint, are your allegations about what impacts got under the 2010 agreement, those allegations of fact or allegations of law?

[00:38:46] Speaker 06:
The allegations about what impacts received as part of the 2010 agreement, well, those are allegations of fact.

[00:38:55] Speaker 06:
The fact that there is a license

[00:38:58] Speaker 06:
But that's a fact.

[00:39:01] Speaker 01:
But what that contract gave them?

[00:39:06] Speaker 06:
The contract in very uncertain.

[00:39:08] Speaker 01:
It's not only a question of law.

[00:39:10] Speaker 01:
I'm having trouble sorting it out.

[00:39:13] Speaker 06:
So the contract itself, in terms of the provisions itself, it says, we grant you a non-exclusive royalty-free license.

[00:39:22] Speaker 06:
That is a fact.

[00:39:24] Speaker 06:
Now, if there is a dispute about what that means,

[00:39:28] Speaker 06:
And you have to construe the contract.

[00:39:32] Speaker 06:
Well, then we get into some questions of law.

[00:39:34] Speaker 01:
Okay, so then your allegations about what they got under the 2017 agreement.

[00:39:42] Speaker 01:
What impacts got under the 2017 agreement?

[00:39:46] Speaker 01:
Those are also

[00:39:48] Speaker 01:
And if there's some confusion about what they were getting, you have to really compare the 2010 and 2017 both to figure this out.

[00:39:58] Speaker 01:
That's what your argument has been all along.

[00:39:59] Speaker 01:
And you have to look at what they got in 2010 to figure out what they were getting in 2017.

[00:40:03] Speaker 01:
Are those not questions of contract law that a district court does not have to view like facts in the light most favorable to the plaintiff?

[00:40:19] Speaker 06:
Questions about contract law in terms of, say, the validity or whether or not the 2017 agreement was reached, this court does not need to resolve those to rule in our favor regarding what were the rights that Impacts enjoyed under his license.

[00:40:37] Speaker 06:
It's clear that Impacts had a license.

[00:40:38] Speaker 01:
But if the whole point of the 2017 litigation was by Endo to challenge what Impacts thought it had under the 2010 agreement,

[00:40:49] Speaker 01:
That's why I'm having trouble figuring out how to apply, as Judge Child said, how we apply pleading principles when the whole point of the 2017 litigation was that we disagree about what you got with respect to, I guess what's been called the future patents in the briefing.

[00:41:09] Speaker 01:
We dispute what you got as to those under the 2010 agreement.

[00:41:14] Speaker 01:
All right, so is that they send your complaints has, you know, this, this is how we interpret that situation.

[00:41:21] Speaker 01:
Is that something that just for it has to credit to you and assume you're right on or does it just for half to

[00:41:27] Speaker 01:
that's a legal allegation that I can resolve right now as part of the motion to dismiss.

[00:41:32] Speaker 06:
So the only allegations in our complaint that concern the 2016 agreement are the fact that there was an agreement that that agreement involved royalties and did not speak to you have allegations about based on this why I said it's a 2010 and 2017.

[00:41:48] Speaker 01:
What did you get from 2010 seems to be

[00:41:52] Speaker 01:
You put a lot of weight on that because you have said many times in this argument, many times in your brief, they got from 2010 the right to be on the market and stay on the market and nothing in the 2016 litigation was going to change that.

[00:42:09] Speaker 01:
But of course, Endo's complaint in 2016 very much seemed to dispute

[00:42:17] Speaker 01:
impacts his ability to exercise the future patents, what is called the future patents, but patents that ENDO held over this product.

[00:42:25] Speaker 01:
And so how do we look at those?

[00:42:28] Speaker 01:
What is our review for how the district court understood that, you know, that dispute about what impacts got in 2010 with respect to the future patents?

[00:42:40] Speaker 06:
The dispute from the 2016 litigation, that dispute and resolving that dispute, including the factual and legal issues in that case, are not appropriate to be considered as part of whether or not our complaint stated a claim.

[00:43:01] Speaker 01:
Because?

[00:43:03] Speaker 06:
Because of the fact that that is part of the party's justification for why

[00:43:08] Speaker 06:
this agreement does not violate the antitrust laws and one does not get into the justifications for an agreement until step two of the rule of reason.

[00:43:18] Speaker 06:
And our obligation as a plaintiff under a rule of reason case under section one is to allege market power.

[00:43:26] Speaker 01:
We don't get to rule of reason until first you have to allege upfront

[00:43:30] Speaker 01:
an improper exercise of market power, correct?

[00:43:33] Speaker 01:
You have to do that upfront in your complaint to state a claim.

[00:43:36] Speaker 06:
If state market power and the fact that the exercise of that market power had anti-competitive effects.

[00:43:41] Speaker 01:
Yes.

[00:43:41] Speaker 01:
And so if one thought that understanding or resolving this dispute about what they got under the 2010 agreement involved, whether or not they had the market power they thought they impacts thought it had,

[00:43:58] Speaker 01:
And it would go into your statement of a claim, not to the rule of reason defense, would it not?

[00:44:04] Speaker 06:
It does our claim.

[00:44:06] Speaker 06:
Again, you just have to say the plausible claim that impacts had a right to be on the market and certainly based upon the license and based upon the fact of what the parties themselves said in two other litigations before federal tribunal.

[00:44:23] Speaker 01:
But also you have to include what they said in the 2016 litigation too.

[00:44:26] Speaker 01:
I have to look at all three litigations.

[00:44:29] Speaker 06:
And there was no determination that 2016 litigation really threatened impacts his right to be on the market.

[00:44:43] Speaker 06:
Recall that we alleged that the parties... Double damages would be... I'm sorry, I guess...

[00:44:51] Speaker 01:
General counsel came to me and said, I'm facing trouble damages under Federal Trade Commission Act or the Sherman Act, however you want to characterize it.

[00:45:01] Speaker 01:
Is that serious threat, something I should take seriously?

[00:45:07] Speaker 01:
I'm going to say yes.

[00:45:11] Speaker 06:
In another case, perhaps so, but the party's conduct here does not, and particularly impacts conduct here, does not suggest a party that was fearing for its ability to be on the market.

[00:45:23] Speaker 06:
It's important to note that.

[00:45:26] Speaker 01:
So we have to assume, do we have to, so the allegation is we assume they settled litigation to create this monopoly and not to eliminate any risk to any litigation risk for impacts.

[00:45:39] Speaker 01:
That's sort of part of your case.

[00:45:41] Speaker 01:
They didn't have any real threat.

[00:45:43] Speaker 01:
All they did was use this as an excuse to set up this monopoly.

[00:45:46] Speaker 06:
Well, Your Honor, under activists, if they use this agreement, and we think they did use this agreement to eliminate the risk, the competition risk facing them, and agree to create a monopoly, share monopoly profits,

[00:46:00] Speaker 06:
Under activists, that is the relevant anti-competitive harm.

[00:46:03] Speaker 06:
So even if you credit their claims now that impacts is right to be on the market, we're in dispute.

[00:46:13] Speaker 06:
Settling that dispute by agreeing to share monopoly profits with just one of them remaining on the market, that is a relevant anti-trust harm under activists.

[00:46:22] Speaker 06:
And we'd like to be able to make that case on remand.

[00:46:23] Speaker 05:
Let me make sure my colleagues don't have additional questions at this point.

[00:46:26] Speaker 05:
We'll give you a little time for rebuttal.

[00:46:28] Speaker 05:
Thank you very much, Your Honors.

[00:46:33] Speaker 05:
Mr. Gordon.

[00:46:40] Speaker 03:
Thank you, Your Honor.

[00:46:43] Speaker 03:
Please support George Gordon for the Apple Ease endo pharmaceuticals, Inc.

[00:46:47] Speaker 03:
and endo international.

[00:46:53] Speaker 03:
The problem with the FTC's position in this case is that it has no real limiting principles.

[00:47:00] Speaker 03:
We just heard from counsel is that all they have to plead is market power and conduct that creates a risk of an incompatible.

[00:47:10] Speaker 03:
And here, what they've played is that Endo and Impex entered into agreement with a patent holder, Endo, chose to allow Impex to be the only one practicing the patent to the exclusion of both itself as the patent owner and others, other potential licensees.

[00:47:28] Speaker 03:
That describes literally every exclusive license.

[00:47:31] Speaker 01:
And the Patent Act is... Well, it doesn't describe exclusive licenses, which they say at least the majority are vertical.

[00:47:39] Speaker 01:
as opposed to horizontal competitors or involve other types of agreements that aren't between two head-to-head direct competitor, horizontal competitors?

[00:47:47] Speaker 03:
There are certainly vertical agreements.

[00:47:49] Speaker 03:
I'm not in a position to say and don't believe, as a matter of fact, but I don't think it's relevant to the court's decision, but those are the majority.

[00:47:55] Speaker 03:
There are plenty of examples.

[00:47:56] Speaker 01:
You just said every exclusive license.

[00:47:57] Speaker 01:
I was just trying to clarify their position.

[00:47:59] Speaker 01:
They're only talking about exclusive licenses between two head-to-head horizontal

[00:48:04] Speaker 03:
No, because I'm also talking about the kind of exclusive license that was issued in a Studion Gellinshaft case from this circuit, where the court recognized that even though it was a vertical license as with respect to the licensor and the exclusive licensee,

[00:48:21] Speaker 03:
it did actually have very clear horizontal competitive effects because it also excluded other horizontal competitors from the relevant market.

[00:48:30] Speaker 03:
Having the effect, just as the FTC alleged here, of raising prices and allowing the patent holder and the exclusive licensee to share monopoly profits.

[00:48:41] Speaker 03:
Which again, so

[00:48:43] Speaker 03:
really what the FTC's position would require in order to escape scrutiny under the NHS laws is the exclusive license would have to be for a patent that neither the patent holder can actually or potentially practice, or any other exclusive licensee can actually or potentially practice.

[00:49:04] Speaker 03:
That is a very rare thing if it exists at all, Your Honor.

[00:49:07] Speaker 03:
So I think that the difference between the vertical and horizontal is

[00:49:12] Speaker 03:
more than a bit illusory in this case and frankly in any case because exclusive licenses even when the patent holder isn't or has chosen not to practice the patent still have a horizontal effect with respect to other licensees and the patent holder itself if the patent holder could choose to practice the patent but decides not.

[00:49:36] Speaker 01:
I just want to ask you about the theory of the 2016

[00:49:40] Speaker 01:
uh, complaint.

[00:49:42] Speaker 01:
Was it Endo's position in that complaint and that litigation that, um, the alleged breach of the 2010 licensing agreement and validated the license?

[00:49:55] Speaker 03:
It was Endo's position.

[00:49:57] Speaker 03:
It had sent a notice of termination, but the license had not terminated.

[00:50:02] Speaker 03:
It was Endo's position that the

[00:50:07] Speaker 03:
royalty negotiation, the royalty payment was a condition of practicing the license so that if that condition was not satisfied, there would no longer be a license that Impacts was practicing under, which is why in addition to the breach of contract claims, Pendo did bring patent infringement claims as well.

[00:50:31] Speaker 01:
Right, so just to answer just more directly for my purposes, Endo's position was that the alleged breach and the failure to negotiate over the royalties for the future patents, I think that's what you all call them, was a breach or if they didn't start negotiating right away, would be a breach and they would lose their license?

[00:50:54] Speaker 03:
The license would no longer be effective, that's correct.

[00:50:58] Speaker 01:
And the argument was that they had already breached it by not negotiating, or was the point of the litigation to prompt them to negotiate?

[00:51:05] Speaker 01:
It was already breached.

[00:51:08] Speaker 01:
In Endo's view, at the time of that litigation, they had lost the license.

[00:51:12] Speaker 03:
They had lost the right to practice the patents, correct, Your Honor.

[00:51:15] Speaker 01:
They had lost the license?

[00:51:16] Speaker 03:
They had lost the license, yes.

[00:51:17] Speaker ?:
Okay, thank you.

[00:51:18] Speaker 05:
So as you just mentioned, another aspect of the 2016 complaint by Endo was an allegation of patent infringement?

[00:51:28] Speaker 05:
So with respect to that, I'm not, I don't think this is the FTC's theory, but because Endo had alleged patent infringement, then does that bring into play activists' concern that sometimes you could have parties enter into a settlement where the validity of the patent is an issue?

[00:51:48] Speaker 03:
No, because the validity of the patent had already been tested and the patent had survived.

[00:51:52] Speaker 05:
But you, but you alleged patent infringement.

[00:51:55] Speaker 05:
And so it was, it was definitely an issue in that case.

[00:51:58] Speaker 03:
Well, end of position validity wasn't actually an issue because it had already been tested and survived the validity challenge, um, including validity challenges by, um, impact because while impacts was not in the

[00:52:12] Speaker 03:
The litigation we call in our paper, the Southern District of New York litigation, with respect to its original formulation of oxymorphone ER, it was in that case with respect to its crush resistant and of oxymorphone ER.

[00:52:28] Speaker 01:
But more importantly, Your Honor.

[00:52:31] Speaker 01:
Is Impact also marketing the crush resistance?

[00:52:37] Speaker 03:
No, it did not launch the crush resistance.

[00:52:41] Speaker 03:
only the original version.

[00:52:43] Speaker 03:
More importantly, Your Honor, is there was no payment.

[00:52:47] Speaker 03:
The concern in activists was that there was basically a payoff, right, by the patent holder to stop a pressure testing challenge to the patent, to protect a weak patent, I think is the majority called it.

[00:52:59] Speaker 03:
There's no payoff here from impacts, I'm sorry, from ENDO, the patent holder, to impacts, the alleged infringer.

[00:53:07] Speaker 03:
Like the royalty went the other way.

[00:53:08] Speaker 03:
What happened here was there was a dispute

[00:53:10] Speaker 03:
over whether or not impacts could practice the patents without paying a royalty.

[00:53:15] Speaker 03:
The parties had that dispute.

[00:53:17] Speaker 03:
The court recognized that Endo's position survived a motion dismissed, and the parties settled that dispute with impacts agreeing to pay a royalty.

[00:53:26] Speaker 05:
Well, there was a payoff in the grant of the license.

[00:53:29] Speaker 03:
Well, it received in return for that what ENDO had the right to give, which was an exclusive license.

[00:53:35] Speaker 04:
Right.

[00:53:36] Speaker 03:
Right.

[00:53:36] Speaker 03:
So there's nothing, I think it was Judge Millett that used the term, is there anything kind of suspicious about the 2017 agreement, the way the majority of activists anyway seem to think that the reverse payment was suspicious.

[00:53:51] Speaker 03:
And the answer is no.

[00:53:54] Speaker 03:
a resolution of its right to practice under the patent.

[00:53:59] Speaker 03:
And it got what ENDO had the rights under the patent.

[00:54:02] Speaker 05:
I think it would have been a different theory.

[00:54:03] Speaker 05:
I guess my question is, if the FTC brings a complaint that alleges that there's something suspicious because the patent was an issue in 2016 per year on allegations.

[00:54:15] Speaker 05:
And I take it Impacts didn't agree that they had infringed the patent.

[00:54:19] Speaker 05:
We can ask them.

[00:54:20] Speaker 03:
That's correct.

[00:54:20] Speaker 05:
I assume that that's so the validity of the patent

[00:54:24] Speaker 05:
that was alleged to have been infringed in 2016 was an issue.

[00:54:27] Speaker 05:
And if somebody filed a complaint that said, that's an uncertain patent, all you got to do is look at the litigation and see it was an issue.

[00:54:36] Speaker 05:
And we're concerned that the way this resolved is suspicious in the same way that the activist majority was concerned about it.

[00:54:43] Speaker 05:
And is that a, why isn't that just at least a viable theory?

[00:54:47] Speaker 05:
I'm not saying that's a theory of this case.

[00:54:49] Speaker 03:
I think it is.

[00:54:50] Speaker 03:
I'd say two things.

[00:54:51] Speaker 03:
If the FTC thought that was a viable theory, when the FTC knows well how to play the reverse payment case, which played many, including FTC, the activists, it would have played a reverse payment case here.

[00:55:01] Speaker 05:
Right.

[00:55:01] Speaker 05:
I'm granting you that that wasn't played here.

[00:55:03] Speaker 05:
I guess I'm wondering though why conceptually that's not possible.

[00:55:06] Speaker 03:
Because there's no reverse payment.

[00:55:09] Speaker 03:
In FTC, the activists, you had both basically in the form of both hash and

[00:55:16] Speaker 03:
side deals, consideration going from the patent holder, who's trying to protect his patent, to the infringer.

[00:55:24] Speaker 03:
And the only thing coming back from the alleged infringer was we're going to drop our challenge, right?

[00:55:29] Speaker 03:
And so we're not going to pressure test that patent.

[00:55:32] Speaker 03:
This 2017 settlement is very different.

[00:55:35] Speaker 03:
It's very much like, as Judge Lamberth recognized, the kind of commonplace settlement that the majority described in activists, where ENDO

[00:55:45] Speaker 03:
believed in a state of claim that impacts ogre royalties to practice under the patents.

[00:55:54] Speaker 03:
impact settled that case by agreeing to pay royalties to practice under the patent.

[00:55:58] Speaker 03:
That's not a reverse payment.

[00:56:00] Speaker 03:
It's not a payment to protect the weak patent.

[00:56:03] Speaker 03:
And there's no reason to believe that it wanted to protect that patent.

[00:56:07] Speaker 03:
It tested those patents at trial, and it tested those patents all the way up to actually multiple trials, your honor, and it won all of them that went to trial.

[00:56:16] Speaker 03:
And it tested those patents all the way up to the federal circuit, and they were found to be valid.

[00:56:22] Speaker 05:
Make sure my colleagues don't have questions, additional questions for you.

[00:56:25] Speaker 05:
Thank you, Mr. Gordon.

[00:56:26] Speaker 05:
Thank you.

[00:56:27] Speaker 05:
We'll hear from Mr. Lefkowitz now.

[00:56:42] Speaker 07:
I think I can be quite brief this morning because I think we've covered a lot of the ground.

[00:56:50] Speaker 07:
I'd like to just make a few observations in response to some of the questions that were raised by the panel.

[00:56:57] Speaker 07:
On your point, Judge,

[00:57:00] Speaker 07:
You asked about, well, if there was an alleged claim of infringement, doesn't this bring us into activists?

[00:57:06] Speaker 07:
And what activists was concerned about first and foremost, the court said, it said, we're not addressing the typical case where the patentee brings in a infringement claim.

[00:57:17] Speaker 07:
They use the example for $100 and there's $40 paid.

[00:57:22] Speaker 07:
That's not an issue.

[00:57:23] Speaker 07:
We're concerned where the payment goes in the other direction.

[00:57:26] Speaker 07:
Here, of course, at paragraph 98 of the FTC's complaint, they allege that the net present value of the payments in this case, payments from impacts to ENDO,

[00:57:37] Speaker 07:
were over $250 million.

[00:57:40] Speaker 07:
That, of course, is the best evidence.

[00:57:42] Speaker 07:
This is the typical exclusive license.

[00:57:45] Speaker 07:
And Judge Millett raised this question as well.

[00:57:48] Speaker 07:
She said, well, you know, what was the situation after the judge's motion to dismiss rule?

[00:57:53] Speaker 07:
And of course, as you pointed out, they were scared.

[00:57:56] Speaker 07:
They had a suspended license.

[00:57:59] Speaker 07:
The court had said this claim can proceed.

[00:58:02] Speaker 07:
They were facing, in the complaint, enhanced damages.

[00:58:06] Speaker 07:
This is at 25 of the complaint.

[00:58:08] Speaker 07:
Further equitable relief, also at 25.

[00:58:11] Speaker 07:
And of course, it had survived the motion to dismiss.

[00:58:15] Speaker 07:
So they settled.

[00:58:16] Speaker 05:
The complaint you're talking about is Endo's complaint.

[00:58:18] Speaker 07:
And those complaints back in 2016.

[00:58:20] Speaker 07:
That's what was at issue.

[00:58:23] Speaker 07:
So to say that they had a risk-free license and to say this court where Judge Lambert had to accept that as true, that just makes no sense.

[00:58:32] Speaker 07:
He was entitled clearly, leaving aside whether it's a legal conclusion or not, and I think that's a fair question, he was entitled to look at the public record that

[00:58:42] Speaker 07:
The allegation that endo made survived the motion to dismiss.

[00:58:47] Speaker 07:
So we're in a situation where essentially we have, as you pointed out, your honor, right at the beginning, a garden variety exclusive license now.

[00:58:57] Speaker 07:
You, your honor, just to let you ask at the beginning to the FTC, well, was it improper to settle?

[00:59:02] Speaker 07:
They said, no, it wasn't.

[00:59:03] Speaker 07:
But their concern is we either, and we've heard two things, both today and in the brief.

[00:59:10] Speaker 07:
On the one hand, we've heard today it was improper to enter into that license in 2010.

[00:59:15] Speaker 07:
In their briefing, they seem to be suggesting that having given a non-exclusive license,

[00:59:23] Speaker 07:
They now couldn't change it to a more exclusive license.

[00:59:27] Speaker 07:
And I would simply point out, even in their complaint, they don't actually suggest that this is a true exclusive license.

[00:59:35] Speaker 07:
They recognize, I think at paragraphs 94 and 105, that it wasn't.

[00:59:40] Speaker 07:
pure exclusive license.

[00:59:41] Speaker 07:
If End Impacts had stopped selling, if they couldn't get access to enough material, ENDO could have come into the market on its own or licensed it to someone else.

[00:59:51] Speaker 07:
And as the DC Circuit said in the Skibian Shaselcheff case, one of the things we look at is whether a license is less than exclusive.

[01:00:00] Speaker 07:
That even makes it more competitive.

[01:00:02] Speaker 07:
But even if it's an absolute exclusive license, which this court in the 1981 case said

[01:00:09] Speaker 07:
was totally fine.

[01:00:11] Speaker 07:
The only question is, does something happen in activists that changes that analysis?

[01:00:16] Speaker 07:
Activists was concerned, as I said, principally with the unusual situation, as the court pointed out in activists, where

[01:00:25] Speaker 07:
A party with no claim for damages walks away with money simply so it will stay away from the patentee's market.

[01:00:33] Speaker 07:
We clearly didn't have that here, but there was another issue in activist that we don't have here, which is the concern that the patentee is not only

[01:00:42] Speaker 07:
paying money to the generic to stay out but because of the six months exclusivity issue they're essentially icing out all of the other generics because having made a deal with the first filer none of the other generics have the same incentive to even come and challenge the patent because they're going to be backed up behind this six months exclusivity we had no such issues here there was no exclusivity impacts had been selling this product for

[01:01:09] Speaker 07:
many, many years already.

[01:01:11] Speaker 07:
So I would say, and finally on this question of 12b6, well, the judge took a look very carefully at the allegations in the complaint, and he went beyond what I think he even necessarily had to do, which was simply look and see that this is nothing more than an allegation

[01:01:31] Speaker 07:
of a exclusive life.

[01:01:32] Speaker 07:
He actually tested it as best as he could against the activist factors, recognizing that without the 30 months, the six months exclusivity, you didn't have all of the factors lined up.

[01:01:44] Speaker 07:
And he said, and this is all at pages 211 to 217 in the Joint Appendix, he looked at it and he said, there's no question here of

[01:01:54] Speaker 07:
Patent price fixing or cross licensing.

[01:01:58] Speaker 07:
Those were the concerns that after this address in terms of line material and singer and new label.

[01:02:05] Speaker 07:
None of those concerns is your honor pointed out just like.

[01:02:08] Speaker 07:
We're not going beyond the patent at all.

[01:02:11] Speaker 07:
He also said, this is a traditional settlement, which the Supreme Court made clear in activists.

[01:02:18] Speaker 07:
Insofar as the dissent urges that settlements taking these commonplace forms have not been thought for that reason alone to be subject to antitrust liability, we agree and do not intend to alter that understanding.

[01:02:31] Speaker 07:
Activists was focused on something unique.

[01:02:34] Speaker 07:
And then the court recognized that section 361 of the Patent Act

[01:02:38] Speaker 07:
and precedent allows exclusive license.

[01:02:45] Speaker 01:
Under the 2017 agreement what what right under the patent it impacts acquired that it didn't previously have.

[01:02:56] Speaker 07:
Well because as the judge found

[01:02:59] Speaker 07:
When Endo brought that lawsuit, they said, your right to practice this patent continually with respect to the future patents is subject to the negotiation and good faith for new terms or royalty.

[01:03:13] Speaker 07:
And the fact that you have refused to do that when we made this offer of 85% and you refused and you kept selling meant that you were in breach of the contract,

[01:03:23] Speaker 07:
the 2000 contract and therefore you are infringing our patents for the very same reason we thought you were infringing all the way at the beginning.

[01:03:32] Speaker 01:
So right under the patent did you acquire under the 20 that you didn't previously have?

[01:03:37] Speaker 01:
Did you acquire under the 20?

[01:03:38] Speaker 07:
We acquired a new license, a license that had been suspended and it was a license to practice.

[01:03:44] Speaker 01:
Do you agree that the license was suspended during the litigation?

[01:03:47] Speaker 01:
That was the theory of their... I know, but I'm saying what his impacts is.

[01:03:51] Speaker 01:
I guess that was their theory.

[01:03:52] Speaker 01:
Well, I assumed you kept selling through the litigation.

[01:03:55] Speaker 01:
We did, but we kept selling... So you didn't think the license was suspended?

[01:03:58] Speaker 07:
Well, Your Honor, we... I think what happened actually was

[01:04:01] Speaker 07:
We did keep selling, they saw enhanced damages because of that, and they saw equitable relief.

[01:04:09] Speaker 07:
Parties are not obviously required to seek like a TRO to kick you off the market.

[01:04:14] Speaker 07:
Sometimes patentees say, look, you're my guest, you can- I phrased the question the way I did.

[01:04:20] Speaker 01:
I think you described how ENDO would look at the 2017 agreement, that now, okay, you lost that agreement, but now we're giving you a new one.

[01:04:28] Speaker 01:
Does the impacts agree

[01:04:30] Speaker 01:
that it got a license it didn't have before under the patent.

[01:04:37] Speaker 07:
I think the litigating position was look we're entitled to this and we don't have to negotiate a new license but once the trial judge said

[01:04:48] Speaker 07:
You know what, that's in question.

[01:04:50] Speaker 07:
Their complaint stands.

[01:04:52] Speaker 07:
It survived the motion to dismiss.

[01:04:54] Speaker 07:
There was an enormous amount of threat.

[01:04:57] Speaker 01:
Right, so you got certainty and stability.

[01:04:59] Speaker 01:
And I think we got it.

[01:05:00] Speaker 01:
But that's not a right under the patent act.

[01:05:01] Speaker 07:
I think we got a license.

[01:05:03] Speaker 07:
In fact, I don't think there's any way to look at the 2017 agreement and not say it is, in fact, a patent license.

[01:05:11] Speaker 07:
And it's a somewhat different patent license than the one that we

[01:05:16] Speaker 07:
believe we got in 2010.

[01:05:18] Speaker 01:
A new patent license, even if we're replacing patent license, even if you thought the other one continued until that point.

[01:05:26] Speaker 07:
Correct.

[01:05:26] Speaker 07:
And the court, and just to make this last point, parties, even parties that compete with each other, that have complete freedom to operate as joint patentees can license to each other.

[01:05:40] Speaker 07:
And in the Sixth Circuit, the Miller Form case, made clear that a patentee can actually take away

[01:05:46] Speaker 07:
a license that it is granted if it wants to simply compete more rigorously with its former licensee.

[01:05:53] Speaker 07:
And while in that case the court acknowledged it might have been a contract violation, the parties might have been breaching a contract, it raised no antitrust concerns.

[01:06:01] Speaker 05:
And the reason you call it a new license, there was obviously an agreement on the royalty

[01:06:09] Speaker 05:
And as in the 2017 agreement.

[01:06:12] Speaker 05:
And is it your conceptual sense that whenever there's an agreement on a royalty rate going forward, that necessarily means it's a new license?

[01:06:21] Speaker 05:
You could also consider it just to be a fixing of a royalty rate for a license that already existed.

[01:06:25] Speaker 07:
You can certainly, Your Honor, amend a license.

[01:06:28] Speaker 07:
Parties could have a license and then they could amend it based on future facts and circumstances.

[01:06:33] Speaker 07:
And frankly, that's, I think, initially what ENDO sought to do.

[01:06:38] Speaker 07:
They said, look, you have a license and we want a new royalty.

[01:06:44] Speaker 07:
They also said you have an obligation to do that.

[01:06:47] Speaker 07:
And if you don't agree, then we're going to treat this as infringing our patent because we're going to say you've breached.

[01:06:54] Speaker 07:
And while we've strenuously objected, once the federal judge issued his ruling and said that's a viable claim to proceed and we're facing trouble damages, then we have to essentially negotiate a new license.

[01:07:06] Speaker 01:
That's an unusual

[01:07:11] Speaker 01:
that Endo's complaint didn't seek an injunction, even at least a permanent, maybe not a preliminary one, but it's ultimate relief, a permanent injunction against marketing.

[01:07:19] Speaker 07:
It did see a paragraph 25, the complaint, not only enhanced damages, but further equitable relief.

[01:07:27] Speaker 07:
And I understood that further equitable relief could mean to take us off the market.

[01:07:33] Speaker 01:
Was it unusual for them not to have

[01:07:37] Speaker 01:
spelled out in their complaint for relief in a context like this, an infringement case, a request for a permanent injunction.

[01:07:45] Speaker 07:
I've seen cases where patentees try to take the competitor off the market immediately.

[01:07:49] Speaker 01:
I'm not talking about a preliminary injunction.

[01:07:51] Speaker 01:
I'm talking about a complaint relief at the end of the case.

[01:07:55] Speaker 07:
I think they're framing, no, I don't read anything into that.

[01:07:59] Speaker 01:
I think they raise- You've seen other complaints that involve infringement where the holder of the patent has not included a request for relief.

[01:08:07] Speaker 01:
At the end of the case, people may not want to fight about preliminary injunctions.

[01:08:10] Speaker 01:
That's always hard.

[01:08:13] Speaker 01:
At least at the end of the case.

[01:08:13] Speaker 01:
If I win my case, I want you to enjoin them from marketing.

[01:08:16] Speaker 07:
Well, I think the further equitable relief speaks to that.

[01:08:19] Speaker 01:
I understand that you're reading a further equitable relief.

[01:08:22] Speaker 01:
I'm asking you.

[01:08:23] Speaker 01:
is that I don't do patent law.

[01:08:28] Speaker 01:
There's no doubt that you do more because you've done one.

[01:08:29] Speaker 01:
That's within me.

[01:08:31] Speaker 01:
So is that commonly how this is in complaints, or is it much more common for them to have that line in there?

[01:08:39] Speaker 01:
I sure, if I were the lawyer drafting that, I'd be very nervous.

[01:08:43] Speaker 01:
My client's going to be very mad at the end of the day of just before it goes, you didn't ask for it, so you're not getting it.

[01:08:48] Speaker 07:
I think I can't speak to why endo said we want further equitable relief didn't specifically say at that time they would have been entitled in the course of the case to specifically define the equitable relief they wanted but also they were

[01:09:05] Speaker 07:
confident they had just prevailed.

[01:09:07] Speaker 07:
The patents had succeeded and been affirmed by the federal circuit.

[01:09:10] Speaker 07:
They might have felt, look, we're racking up treble damages on every dollar they sell.

[01:09:16] Speaker 07:
Let's let them stay out there for a while, and we'll take them to the cleaners.

[01:09:22] Speaker 05:
Okay.

[01:09:23] Speaker 05:
Thank you, counsel.

[01:09:23] Speaker 05:
Thank you very much, Your Honor.

[01:09:24] Speaker 05:
Mr. Hegetus will give you three minutes for rebuttal.

[01:09:33] Speaker 06:
Thank you, Your Honor.

[01:09:34] Speaker 06:
I'd like to start with that very last point about ENDO just leaving impacts on the market to while the ENDO impacts accumulates all this damage of liability, ENDO approached impacts to settle this case.

[01:09:47] Speaker 06:
Impacts approach ENDO to settle the case.

[01:09:50] Speaker 06:
That definitely suggests that impacts had confidence in its position despite having lost on its motion to dismiss.

[01:09:56] Speaker 01:
Would your case be any different if it had been the other way around?

[01:10:00] Speaker 01:
Would your case be, is that at all material to whether you've stated a claim of any trust violation here or Sherman Act or Federal Trade Commission Act?

[01:10:08] Speaker 06:
It goes to this question of whether or not our allegation regarding impacts is right to be on the market is possible.

[01:10:14] Speaker 06:
And so the conduct of the parties suggested that impacts really much believed it had that right.

[01:10:23] Speaker 01:
In addition, I'd like to point out- So does it affect your, it doesn't affect your legal position whatsoever, your legal theory at all?

[01:10:29] Speaker 06:
It doesn't affect the legal theory at all.

[01:10:32] Speaker 06:
It goes to whether or not our complaint plausibly alleged impacts at our right to be on the market.

[01:10:38] Speaker 06:
I would like to address, though, this question of the unusual nature of the agreement in activists versus this one.

[01:10:47] Speaker 06:
One of the keys and activists was the fact that the generic received a payment from the brand.

[01:10:54] Speaker 06:
And that was deemed to be unusual.

[01:10:57] Speaker 06:
There's some very unusual aspects to this agreement as well.

[01:11:02] Speaker 06:
To begin with, this was a dispute about royalties.

[01:11:06] Speaker 06:
And out of that dispute, and the settlement of that dispute, impacts received monopoly.

[01:11:16] Speaker 06:
If impacts had prevailed in the litigation over the royalty rates,

[01:11:23] Speaker 06:
impacts could not have obtained a monopoly.

[01:11:27] Speaker 06:
So that's highly unusual.

[01:11:29] Speaker 01:
And so to say that this has prevailed, Endo couldn't have gotten a royalty either, right?

[01:11:35] Speaker 06:
Oh, that is correct, Your Honor.

[01:11:37] Speaker 06:
It would have been a continuation of the status quo, where impacts had a right to be on the market.

[01:11:42] Speaker 06:
But impacts coming out of the settlement with

[01:11:46] Speaker 06:
of royalty was highly unusual.

[01:11:50] Speaker 06:
And so it makes it comparable to what happened in the activist case.

[01:11:57] Speaker 06:
Another thing I'd like to point out with respect to activists is the fact that the uncertainty is not just about patent validity.

[01:12:04] Speaker 06:
It's also about infringement.

[01:12:07] Speaker 06:
And here we have uncertainty about the respective competitive rights of these two parties.

[01:12:12] Speaker 06:
And they settled that uncertainty

[01:12:14] Speaker 06:
by agreeing to monopoly and sharing monopoly profits.

[01:12:17] Speaker 06:
And that is the relevant anti-competitive harm under activists.

[01:12:22] Speaker 01:
Can you ask me, tell me how you, how would you deal if you're right in the opinion with in your favor with Supreme Court's decision in Westinghouse, which, which activists reaffirmed.

[01:12:35] Speaker 01:
And that was an agreement not to compete between two direct

[01:12:41] Speaker 01:
competitors, a patent holder and a direct competitor.

[01:12:46] Speaker 06:
In that situation, GE licensed Westinghouse to be a producer for it.

[01:12:55] Speaker 01:
A direct horizontal competitor?

[01:12:58] Speaker 06:
No, there's actually disagreement about what was going on in that case.

[01:13:02] Speaker 06:
Many people view that as having been a vertical agreement.

[01:13:05] Speaker 01:
What about the Supreme Court?

[01:13:07] Speaker 06:
This is Supreme Court allowed it as a horizontal agreement between two direct competitors.

[01:13:14] Speaker 06:
The Supreme Court has not clarified that.

[01:13:16] Speaker 06:
They kind of say, OK, well, we know there is this GE case out here.

[01:13:20] Speaker 06:
But in these other cases, the GE case has come under a great deal of scrutiny, both by courts as well as by commentators.

[01:13:28] Speaker 06:
The Supreme Court has never overruled it.

[01:13:31] Speaker 01:
So we're bound.

[01:13:31] Speaker 01:
And they decided to do it again on activists.

[01:13:34] Speaker 01:
So we have to read activists with Westinghouse.

[01:13:37] Speaker 06:
taking Westinghouse at its word every word that's what I'm asking you to reconcile right right but but this is not the GE Westinghouse situation okay oh no because of the competitive relationships that you have between endo and uh impacts my understanding of the house didn't have a competitive relationship

[01:13:58] Speaker 06:
Westinghouse needed to be licensed in order to exercise that patent, in order to reduce those light bulbs.

[01:14:06] Speaker 06:
Here we have a situation where ENDO, excuse me, Impact is already on the market via the 2010 license.

[01:14:15] Speaker 06:
And thus, they have this horizontal, fiercely competitive relationship that did not exist in the GE Westinghouse situation.

[01:14:26] Speaker 06:
But fundamentally, and here, the course decisions in student Gashel Shroff Cola supports us is that we're asking that this agreement be subject to antitrust scrutiny.

[01:14:40] Speaker 06:
This court subjected the vertical agreement in the SK case to antitrust scrutiny to rule of reason analysis.

[01:14:48] Speaker 06:
And all we're asking for here is the opportunity to present our case under the rule of reason.

[01:14:55] Speaker 06:
And we would ask you to please remand the case, reverse remand, and allow us that opportunity to make our case.

[01:15:04] Speaker 06:
Thank you, counsel.

[01:15:05] Speaker 06:
Thank you to all counsel.

[01:15:06] Speaker 06:
We'll take this case under submission.