PRECEDENTIAL

      UNITED STATES COURT OF APPEALS
           FOR THE THIRD CIRCUIT
                ___________

                     No. 14-1243
                     ___________

  KING DRUG COMPANY OF FLORENCE, INC.;
   LOUISIANA WHOLESALE DRUG CO., INC.,
  on behalf of itself and all others similarly situated,
                                          Appellants

                            v.

 SMITHKLINE BEECHAM CORPORATION, doing
    business as GLAXOSMITHKLINE; TEVA
 PHARMACEUTICAL INDUSTRIES LTD.; TEVA
              PHARMACEUTICALS

             _______________________

   On Appeal from the United States District Court
            for the District of New Jersey
       D.C. Civil Action No. 2-12-cv-00995
    District Judge: Honorable William H. Walls
                   ______________

             Argued: November 19, 2014

Before: AMBRO, SCIRICA, and ROTH, Circuit Judges.
               (Opinion Filed: June 26, 2015)


Bruce E. Gerstein, Esq. [ARGUED]
Kimberly Hennings, Esq.
Joseph Opper, Esq.
Garwin Gerstein & Fisher
Wall Street Plaza
88 Pine Street, 10th Floor
New York, NY 10036

Peter S. Pearlman, Esq.
Cohn, Lifland, Pearlman, Herrmann & Knopf
Park 80 West – Plaza One
250 Pehle Avenue, Suite 401
Saddle Brook, NJ 07663

      Counsel for Appellants

Donald L. Bell, II, Esq.
National Association of Chain Drug Stores
413 North Lee Street
Alexandria, VA 22314

Barry L. Refsin, Esq.
Hangley, Aronchick, Segal, Pudlin & Schiller
One Logan Square
18th & Cherry Streets, 27th Floor
Philadelphia, PA 19103

      Counsel for Amicus Curiae National Association of
Chain Drug Stores Inc.




                               2
Steve D. Shadowen, Esq.
Hilliard & Shadowen
39 West Main Street
Mechanicsburg, PA 17055

      Counsel for Amicus Curiae 53 Law, Economics, and
Business Professors, The American Antitrust Institute and
Consumers Union

Peter Kohn, Esq.
Richard D. Schwartz, Esq.
Faruqi & Faruqi
101 Greenwood Avenue
Suite 600
Jenkintown, PA 19046

David F. Sorensen, Esq.
Berger & Montague
1622 Locust Street
Philadelphia, PA 19103

     Counsel for Amicus Curiae Professional Drug
Company, Inc.

Mark S. Hegedus, Esq. [ARGUED]
Federal Trade Commission
MS-582
600 Pennsylvania Avenue, N.W.
Washington, DC 20580

     Counsel for Amicus Curiae Federal Trade
Commission




                             3
Crystal M. Utley, Esq.
Office of Attorney General of Mississippi
Consumer Protection Division
P.O. Box 22947
Jackson, MS 39225

       Counsel for Amicus Curiae State of Mississippi, State
of Alabama, State of Arkansas, State of Arizona, State of
California, State of Connecticut, State of Delaware, State of
Hawaii, State of Idaho, State of Illinois, State of Indiana,
State of Kentucky, State of Massachusetts, State of Maryland,
State of Michigan, State of Minnesota, State of New
Hampshire, State of New Mexico, State of New York, State of
Nevada, State of Ohio, Commonwealth of Pennsylvania, State
of Rhode Island, State of Tennessee, State of Texas, State of
Utah, State of Vermont, State of Washington

Douglas S. Eakeley, Esq.
Joseph A. Fischetti, Esq.
Lowenstein Sandler
65 Livingston Avenue
Roseland, NJ 07068

Barbara W. Mather, Esq. [ARGUED]
Robin P. Sumner, Esq.
Pepper Hamilton
18th & Arch Streets
3000 Two Logan Square
Philadelphia, PA 19103

      Counsel for Appellee Smithkline Beecham Corporation




                              4
Jonathan D. Janow, Esq.
John C. O’Quinn, Esq.
Karen N. Walker, Esq.
Kirkland & Ellis
655 15th Street, N.W.
Suite 1200
Washington, DC 20005

Jay P. Lefkowitz, Esq. [ARGUED]
Kirkland & Ellis
601 Lexington Avenue
New York, NY 10022

       Counsel for Appellees TEVA Pharmaceutical
Industries LTD and TEVA Pharmaceuticals

Ryan Z. Watts, Esq.
Arnold & Porter
555 Twelfth Street, N.W.
Washington, DC 20004

     Counsel for Amicus Curiae Pharmaceutical Research
and Manufacturers of America

Daniel S. Francis, Esq.
Ryan A. Shores, Esq.
Hunton & Williams
2200 Pennsylvania Avenue, N.W.
Washington, DC 20037

     Counsel for Amicus Curiae National Association of
Manufacturers




                            5
Leslie E. John, Esq.
Ballard Spahr
1735 Market Street
51st Floor
Philadelphia, PA 19103

       Counsel for Amicus Curiae Professor W. David
Bradford, University of Georgia, Professor Ian Cockburn,
Boston University, Pierre Yves Cremieux, Analysis Group,
Inc., Professor Henry G. Grabowski, Duke University, Paul
E. Greenberg, Analysis Group, Inc., Professor James W.
Hughes, Bates College, George Kosicki, Analysis Group, Inc.,
Professor Tracy R. Lewis, Duke University, Professor Sean
Nicholson, Cornell University, Bruce E. Stangle, Analysis
Group, Inc., Sally D. Woodhouse, Cornerstone Research,
Professor Michael K. Whoglgenant, North Caroline State
University


Brian T. Burgess, Esq.
William M. Jay, Esq.
Goodwin Procter
901 New York Avenue, N.W.
Suite 900 East
Washington, DC 20001

Christopher T. Holding, Esq.
Goodwin Procter
53 State Street
Exchange Place
Boston, MA 02109




                               6
      Counsel for Amicus Curiae Generic Pharmaceutical
Association




                    _________________

                OPINION OF THE COURT
                   _________________

SCIRICA, Circuit Judge.

       In this appeal from the grant of a motion to dismiss for
failure to state a rule-of-reason claim under Sections 1 and 2
of the Sherman Act under Federal Rule of Civil Procedure
12(b)(6), we are asked to determine whether FTC v. Actavis,

(2013), covers, in addition to reverse cash
payments, a settlement in which the patentee drug
manufacturer agrees to relinquish its right to produce an
“authorized generic” of the drug (“no-AG agreement”) to
compete with a first-filing generic’s drug during the generic’s
statutorily guaranteed 180 days of market exclusivity under
the Hatch-Waxman Act1 as against the rest of the world.

       In Actavis, the Supreme Court held that unexplained
large payments from the holder of a patent on a drug to an
alleged infringer to settle litigation of the validity or
infringement of the patent (“reverse payment”) “can

   1
     Hatch-Waxman is the short name for the Drug Price
Competition and Patent Term Restoration Act of 1984, Pub.
L. No. 98-417, 98 Stat. 1585.




                              7
sometimes violate the antitrust laws.” 

The Court
rejected the near-irrebuttable presumption, known as the
“scope of the patent” test, that a patentee can make such
reverse payments so long as it is paying potential competitors
not to challenge its patent within the patent’s lifetime.
       Plaintiffs here, direct purchasers of the brand-name
drug Lamictal, sued Lamictal’s producer, Smithkline
Beecham Corporation, d/b/a GlaxoSmithKline (“GSK”), and
Teva Pharmaceutical Industries Ltd. (“Teva”2), a
manufacturer of generic Lamictal, for violation of Sections 1
and 2 of the Sherman Act, 15 U.S.C. §§ 1 & 2.3 In earlier


   2
      “Teva” refers collectively to Teva Pharmaceutical
Industries Ltd. and its subsidiary Teva Pharmaceuticals USA,
Inc.
   3
     Plaintiffs bring their Sherman Act claims under Sections
4 (damages) and 16 (injunctive relief) of the Clayton Act, 15
U.S.C. §§ 15 & 26, respectively. The Clayton Act requires “a
plaintiff to have standing to bring an antitrust claim.”
Angelico v. Lehigh Valley Hosp., Inc., 

, 273 (3d
Cir. 1999). At the motion-to-dismiss stage, “a plaintiff must
allege more than that it has suffered an injury causally linked
to a violation of the antitrust laws.” Pace Elecs., Inc. v.
Canon Computer Sys., Inc., 

, 120 (3d Cir. 2000).
The plaintiff must also “allege antitrust injury, ‘which is to
say injury of the type the antitrust laws were intended to
prevent and that flows from that which makes defendants’
acts unlawful.’” 

Corp. v. Pueblo
Bowl-O-Mat, Inc., 

, 489 (1977)). As noted
below, we do not here address the issue of antitrust injury, nor
do we preclude consideration of the issue on remand. See
infra notes 20 & 35 and accompanying text.




                               8
litigation, Teva had challenged the validity and enforceability
of GSK’s patents on lamotrigine, Lamictal’s active
ingredient. Teva was also first to file an application with the
FDA alleging patent invalidity or nonenforceability and
seeking approval to produce generic lamotrigine tablets and
chewable tablets for markets alleged to be annually worth $2
billion and $50 million, respectively. If the patent suit
resulted in a judicial determination of invalidity or
nonenforceability—or a settlement incorporating such
terms—Teva would be statutorily entitled to a valuable 180-
day period of market exclusivity, during which time only it
and GSK could produce generic lamotrigine tablets. (The
relevant statute permits the brand to produce an “authorized
generic” during the exclusivity period. Mylan Pharm., Inc. v.
FDA, 

, 276-77 (4th Cir. 2006); Teva Pharm.
Indus. Ltd. v. Crawford, 

, 55 (D.C. Cir. 2005); see
also Sanofi-Aventis v. Apotex Inc., 

, 1175 (Fed.
Cir. 2011).)

        After the judge presiding over the patent litigation
ruled the patent’s main claim invalid, GSK and Teva settled.
They agreed Teva would 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.
Plaintiffs contend that this “no-AG agreement” qualifies as a
“reverse payment” under Actavis because, like the cash
reverse payments the Court there warned could face antitrust
scrutiny, GSK’s no-AG commitment was designed to induce
Teva to abandon the patent fight and thereby agree to
eliminate the risk of competition in the $2 billion lamotrigine




                              9
tablet market for longer than the patent’s strength would
otherwise permit.

       We believe this no-AG agreement falls under Actavis’s
rule because it may represent an unusual, unexplained reverse
transfer of considerable value from the patentee to the alleged
infringer and may therefore give rise to the inference that it is
a payment to eliminate the risk of competition. As the Court
noted, these kinds of settlements are subject to the rule of
reason.

                               I.

       “A patent . . . is an exception to the general rule
against monopolies and to the right to access to a free and
open market.” Walker Process Equip., Inc. v. Food Mach. &
Chem. Corp., 

, 177 (1965) (quoting Precision
Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 

,
816 (1945)). The Constitution’s “Patent Clause itself reflects
a balance between the need to encourage innovation and the
avoidance of monopolies which stifle competition without
any concomitant advance in the ‘Progress of Science and
useful Arts.’” Bonito Boats, Inc. v. Thunder Craft Boats, Inc.,

, 146 (1989) (quoting U.S. Const. art. I., § 8, cl.
8). In turn, “[f]rom their inception, the federal patent laws
have embodied a careful balance between the need to promote
innovation and the recognition that imitation and refinement
through imitation are both necessary to invention itself and
the very lifeblood of a competitive economy.” Id.; see X
Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law
¶ 1780a (3d ed. 2011) (“Patent law . . . serves the interests of
consumers by protecting invention against prompt imitation
in order to encourage more innovation than would otherwise




                               10
occur.”). A patent, consequently, “is a special privilege
designed to serve the public purpose of promoting the
‘Progress of Science and useful Arts.’” Precision Instrument
Mfg. 

.

       With the Drug Price Competition and Patent Term
Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585,
commonly known as the Hatch-Waxman Act, Congress
attempted to balance the goal of “mak[ing] available more
low cost generic drugs,” H.R. Rep. No. 98-857, pt. 1, at 14-15
(1984), reprinted in 1984 U.S.C.C.A.N. 2647, 2647-48, with
the value of patent monopolies in incentivizing beneficial
pharmaceutical advancement, see H.R. Rep. No. 98-857, pt.
2, at 30 (1984), reprinted in 1984 U.S.C.C.A.N. 2686, 2714.
The Act seeks to accomplish this purpose, in part, by
encouraging “manufacturers of generic drugs . . . to challenge
weak or invalid patents on brand name drugs so consumers
can enjoy lower drug prices.” S. Rep. No. 107-167, at 4
(2002). The resulting regulatory framework has the following
four relevant features identified by the Supreme Court in

.

       First, a new drug—that is, a pioneer, “brand-name”
drug—cannot be introduced until it is approved by the Food
and Drug Administration (“FDA”). 21 U.S.C. § 355(a). A
New Drug Application (“NDA”) requires the applicant to
submit, among other things, “full reports of investigations
which have been made to show whether or not such drug is
safe for use and whether such drug is effective in use,” 

as well as comprehensive information about
the drug, 

This reporting requirement entails
“a long, comprehensive, and costly testing process.” 

.




                             11
       Second, the Hatch-Waxman Act facilitates the
development of generic drugs by allowing an applicant to file,
for new drugs shown to be “bioequivalent” to a drug
previously approved by the FDA, 21 U.S.C.
§ 355(j)(2)(A)(iv), a less onerous and less costly
“Abbreviated New Drug Application” (“ANDA”) in lieu of
an NDA. See 

. The
ANDA process “allow[s] the generic to piggy-back on the
pioneer’s approval efforts . . . , thereby furthering drug
competition.” 

(citing Caraco
Pharm. Labs., Ltd. v. Novo Nordisk A/S, 

,
1676 (2012)).4

       Third, Hatch-Waxman “sets forth special procedures
for identifying, and resolving, related patent disputes.” 

drug applicant must list information on any patents
issued on the drug’s composition or methods of use. See 21
U.S.C. § 355(b)(1); 

. If the FDA
approves the new drug, it publishes this information, without



   4
      “Rather than providing independent evidence of safety
and efficacy, the typical ANDA shows that the generic drug
has the same active ingredients as, and is biologically
equivalent to, the brand-name drug.” 

; see 21 U.S.C. § 355(j) (ANDA requirements). Before
Hatch-Waxman, a company desiring to produce a generic
version of a drug approved after 1962 had to conduct its own
testing and trials to show that its generic version was safe and
effective for human use. H.R. Rep. No. 98-857, pt. 1, at 16-
17.




                              12
verification, in its Orange Book.5 

.
In turn, any manufacturer filing an ANDA to produce a
generic version of that pioneer drug must consult the Orange
Book and “assure the FDA that [the] proposed generic drug
will not infringe the brand’s patents.” Id.6 As relevant here,
the manufacturer may tender that assurance with a “paragraph
IV” certification that the relevant listed patents are “invalid or
will not be infringed by the manufacture, use, or sale of the
[generic] drug.” 21 U.S.C. § 355(j)(2)(A)(vii)(IV). But
“[f]iling a paragraph IV certification means provoking
litigation,” 

, because the patent
statute treats paragraph IV certification as a per se act of
infringement, see 35 U.S.C. § 271(e)(2)(A).7 The patentee

   5
      The volume, officially known as Approved Drug
Products with Therapeutic Equivalence Evaluations, is
available at http://www.fda.gov/cder/ob/. See generally, e.g.,
21 U.S.C. § 355(b)(1) (“Upon approval of the application, the
Secretary shall publish information submitted . . . .”); 

.
   6
     Although the FDA performs no independent patent
review, it cannot approve an ANDA if the proposed generic
would infringe any of the brand’s asserted patents. See

.
   7
      Further, an ANDA applicant making a paragraph IV
certification must notify any patent holder within twenty days
of the FDA’s confirmation of its ANDA filing, 21 U.S.C.
§ 355(j)(2)(B)(ii), (iii), “of the factual and legal basis of [its]
opinion . . . that the patent is invalid or will not be infringed,”

See also 21 C.F.R. § 314.52
(“Notice of certification of invalidity or noninfringement of a
patent”).




                                13
then has an incentive to sue within 45 days in order to trigger
a 30-month stay of the FDA’s potential approval of the
generic “while the parties litigate patent validity (or
infringement) in court. If the courts decide the matter within
that period, the FDA follows that determination; if they do
not, the FDA may go forward and give approval to market the
generic product.” 

(citing 21 U.S.C.
§ 355(j)(5)(B)(iii)).8
       “Fourth, Hatch-Waxman provides a special incentive
for a generic to be the first to file an Abbreviated New Drug
Application taking the paragraph IV route.” 

From when it first begins marketing its drug or when a court
enters judgment finding the challenged patent invalid or
unenforceable, the first-filing generic enjoys a 180-day period
of exclusivity during which no other generic manufacturer
can enter the market. See 21 U.S.C. § 355(j)(5)(B)(iii), (iv).9

   8
       Hatch-Waxman “allows competitors, prior to the
expiration of a patent, to engage in otherwise infringing
activities necessary to obtain regulatory approval.” Eli Lilly &
Co. v. Medtronic, Inc., 

, 671 (1990); see 35
U.S.C. § 271(e)(1). As long as a generic applicant does not
launch its generic “at risk” (i.e., after FDA approval after 30
months but before a determination of patent validity), it will
not be forced to pay money damages. See 35 U.S.C.
§ 271(e)(4)(C). This feature also explains “the creation of a
highly artificial act of infringement”—the paragraph IV
certification—to permit the brand and generic to litigate
patent validity. Eli 

.
   9
     Under current law, the specific mechanism is that an
application by a non–first filer “shall be made effective on the
date that is 180 days after the date of the first commercial
marketing of the drug . . . by any first applicant.” 21 U.S.C.




                              14
This exclusivity period belongs to first-filing ANDA
applicants10 alone and is nontransferable. See 

. The period does
not, however, prevent the brand-patentee from marketing its
own “authorized generic.” Mylan 

-
77; Teva Pharm. 

; see also Sanofi-

.

                              II.

                             A.11



§ 355(j)(5)(B)(iv)(I). But the parties appear to agree that
because the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, Pub. L. No. 108-173,
§ 1102(b)(1),    amended     Hatch-Waxman’s       exclusivity
provisions only for subsequent ANDAs, the exclusivity rules
in place in 2002 control. See Teva Br. 8 & n.1. Under those
rules, the 180-day period begins from the earlier of a
generic’s launching “at risk” or a court’s finding the patent
invalid or unenforceable. See 21 U.S.C. § 355(j)(5)(B)(iv)
(2002).
   10
       “[A]ccording to the Food and Drug Administration, all
manufacturers who file on the first day are considered ‘first
applicants’ who share the exclusivity period. Thus, if ten
generics file an application to market a generic drug on the
first day, all will be considered ‘first applicants.’” 

(Roberts, C.J., dissenting) (citing 21 U.S.C.
§ 355(j)(5)(B)(iv)(II)(bb)).
   11
      The facts recounted in this opinion are taken from the
well-pleaded, nonconclusory factual allegations in plaintiffs’




                              15
        Plaintiffs, a putative class represented by King Drug
Company of Florence, Inc., and Louisiana Wholesale Drug
Co., Inc., are direct purchasers of Lamictal from Defendant
GSK. GSK pioneered Lamictal, a brand-name drug used to
treat epilepsy and bipolar disorder, and secured U.S. Patent
No. 4,602,017 (“the ’017 patent”) on lamotrigine, Lamictal’s
active ingredient. The patent expired on July 22, 2008. GSK
sells both Lamictal tablets and Lamictal chewable tablets,
although most Lamictal prescriptions are for the nonchewable
tablets (most relevant here). Lamictal tablet sales exceeded $2
billion between March 2007 and 2008, while chewable sales
measured about $50 million over a yearlong span around
2005.

       In April 2002, Defendant Teva filed the first paragraph
IV ANDAs to market generic lamotrigine tablets and
chewables. Teva certified that its proposed generics did not
infringe the ’017 patent and/or that the ’017 patent was
unenforceable. GSK soon sued in federal court, see
Complaint, Smithkline Beecham Corp. v. Teva Pharm. USA,
Inc., No. 02-3779 (D.N.J. Aug. 5, 2002) (ECF No. 1), staying
the FDA’s approval of Teva’s ANDAs for 30 months. In late
January 2005, the parties tried the patent case before Judge
Bissell, who ruled that the patent’s main claim, for the
invention of lamotrigine, was invalid. Plaintiffs allege that “it
was highly likely that Teva would prevail with respect to the
remaining patent claims,” which “were extremely weak in
view of Judge Bissell’s ruling that claim 1 was invalid.”


Amended Complaint and all reasonable inferences to be
drawn therefrom. See Ashcroft v. Iqbal, 

, 678-79
(2009).




                               16
       In February 2005, the parties settled their dispute
before Judge Bissell could rule on the validity of the ’017
patent’s remaining claims. GSK agreed to allow Teva to
market generic lamotrigine chewables by no later than June 1,
2005, or 37 months before the patent was to expire on July
22, 2008.12 GSK further agreed to permit Teva to sell generic
lamotrigine tablets on July 21, 2008, if GSK received a
“pediatric exclusivity” extension,13 or March 1, 2008, if GSK
did not. (With a pediatric exclusivity extension, the patent
would still have expired on July 22, 2008, but the FDA would
have been foreclosed from approving ANDAs filed by
competing generics until January 22, 2009. See generally
AstraZeneca AB v. Apotex Corp., 

, 1341, 1343
(Fed. Cir. 2015).)

        Most relevant here, GSK also agreed not to market an
authorized generic until January 2009, after Teva’s 180-day
market exclusivity period was to expire (the “no-AG
agreement” component of the settlement). In fact, plaintiffs
allege, Teva “had an interest in delaying a final court decision
finding the ’017 patent invalid” because the FDA had not yet
approved Teva’s ANDAs, and Teva therefore wanted time to
secure FDA approval so it could “take advantage of its
valuable 180-day period,” which would have begun to run


   12
     Because Teva’s ANDAs had not yet been approved,
GSK also agreed to supply Teva with lamotrigine chewables.
   13
      See generally 21 U.S.C. § 355a(c)(2)(B) (2002) (then in
effect) (providing for situations in which the FDA may not
approve ANDAs for an additional six months if the patent
holder completes certain studies “relating to the use of [the]
drug in the pediatric population”).




                              17
with a final judgment finding the patent invalid or
noninfringed.

        In exchange, Teva agreed to drop its litigation
challenging GSK’s patent and, plaintiffs allege, delay its
entry into the lamotrigine tablet market. If not for the
consideration it received, plaintiffs allege, Teva would have
launched its generic lamotrigine tablet “at risk” after
receiving FDA approval (which occurred later, in August
2006), even if Judge Bissell had not yet ruled the patent
invalid (as, they allege, he was likely to do). Indeed, Teva
was later to assert, in other litigation against GSK, that GSK’s
no-AG agreement was “an important component of the
settlement between the parties and formed part of the
inducement to Teva to relinquish the rights and defenses it
was asserting against GSK in the Patent Litigation.” JA 76
(alteration and emphases omitted).14 Judge Bissell approved
the parties’ settlement and dismissed the case on April 4,
2005.

                              B.

   14
      In July 2008, “[j]ust prior to Teva launching its generic,
GSK approached various pharmacies, group purchasing
organizations, and long-term care facilities and proposed that
they purchase and distribute GSK’s Lamictal at a generic
product price.” Teva Pharm. Indus. Ltd. v. SmithKline
Beecham Corp., No. 08-3706, 

, at *2
(D.N.J. June 16, 2009). Teva sued GSK to attempt to prevent
GSK from “develop[ing] a generic of lamotrigine” because
the parties’ settlement agreement “made clear that [Teva’s]
right [to sell generic lamotrigine] was exclusive—including
as to GSK and its affiliates.” 

*4.




                              18
       Plaintiffs here, direct purchasers of Lamictal from
GSK, sued GSK and Teva in federal court in February 2012
and filed their Consolidated Amended Class Action
Complaint the following June. They allege that defendants,
by their no-AG agreement—in effect, a “reverse payment”
from GSK to Teva—violated section 1 of the Sherman Act by
conspiring to delay generic competition for Lamictal tablets
and section 2 by conspiring to monopolize the lamotrigine
tablet market. GSK and Teva moved to dismiss, countering
that, under our decision in In re K-Dur Antitrust Litigation,

(3d Cir. 2012),15 only cash payments constitute
actionable “reverse payments.”

       In K-Dur, we charted a course different from that set
by several other courts of appeals by rejecting the “scope of
the patent” test, under which “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,” 

(citation omitted). We
reasoned that the scope-of-the-patent test “is contrary to the
policies underlying the Hatch-Waxman Act and a long line of
Supreme Court precedent on patent litigation and

   15
      The Supreme Court later vacated K-Dur and remanded
for reconsideration in light of Actavis, see Merck & Co. v. La.
Wholesale Drug Co., 

(2013); Upsher-Smith
Labs., Inc. v. La. Wholesale Drug Co., 

(2013). K-Dur was inconsistent with Actavis in that we had
directed application of “quick look rule of reason analysis,”

, rather than the traditional, full-
fledged rule of reason standard that the Supreme Court
subsequently decided is proper for reverse payment
settlement agreements, see 

.




                              19
competition.” 

. Patents, we noted, are
simply legal conclusions of the Patent Office. They should
not be irrebuttably presumed valid, we said, especially given
“the public interest support[ing] judicial testing and
elimination of weak patents,” 

and “[t]he line
that Congress drew [in Hatch-Waxman specifically] between
the[] competing objectives” of promoting innovation and
advancing the public interest, 

For these reasons, we
held that rule of reason scrutiny is proper for reverse payment
settlements. 

        The District Court here focused on our limitation of K-
Dur to the pharmaceutical context, see 

and
statements approving “settlements based on a negotiated entry
date for marketing of the generic drug,” 

to
restrict K-Dur’s reach to “settlements when a generic
manufacturer is paid off with money, which is not the case
here,” In re Lamictal Direct Purchaser Antitrust Litig., No.
12-0995, 

, at *6 (D.N.J. Dec. 6, 2012). The
court observed that Teva surely “received consideration,” or
otherwise would have had “no incentive to settle,” but it
viewed the parties’ settlement as “based on negotiated entry
dates” rather than money. 

settlement was
“not subject to antitrust scrutiny” under K-Dur, 

“from a policy perspective, this settlement did introduce
generic products onto the market sooner than what would
have occurred had GSK’s patent not been challenged,” 

the court granted the defendants’ motion to dismiss for
failure to state a claim.



   16
        See supra note 15.




                              20
        Plaintiffs appealed and we stayed proceedings pending
the Supreme Court’s decision in Actavis. After the Court’s
decision, we remanded for further consideration in light of
Actavis. In January 2014, the District Court “affirm[ed] its
order of dismissal.” In re Lamictal Direct Purchaser Antitrust
Litig., 

, 561 (D.N.J. 2014). Although
conceding that “there is some very broad language in the
[Actavis] opinion regarding patent settlements of all kinds,”

the court read Actavis, as it had K-Dur before, as
requiring antitrust scrutiny only of reverse payment patent
settlements that “involve an exchange of money” rather than
some other type of valuable consideration, 

In the
alternative, the court stated, it “considered the settlement
under the ‘five considerations’” of Actavis’s rule of reason
and concluded that the settlement “would survive.” 

                            III.17

       Plaintiffs contend that under Actavis antitrust scrutiny
is not limited to reverse payments of cash. They assert the
antitrust laws may be violated when a brand-name drug
manufacturer induces a would-be generic competitor to delay
market entry by agreeing not to launch an authorized generic
to compete with the generic. Further, they argue, the District
Court usurped the jury’s role in purporting to conduct a rule
of reason analysis by applying the five considerations the

   17
      The District Court had jurisdiction under section 4(a) of
the Clayton Act, 15 U.S.C. § 15(a), and 28 U.S.C. §§ 1331
and 1337. We have jurisdiction under 28 U.S.C. § 1291. We
exercise plenary review over a district court’s ruling on a
Federal Rule of Civil Procedure 12(b)(6) motion to dismiss.
E.g., Byers v. Intuit, Inc., 

, 291 (3d Cir. 2010).




                              21
Actavis Court discussed to justify, not redefine, use of the
already well-established rule of reason analysis. We will
vacate and remand.

                              A.

       As noted, in Actavis, the Supreme Court rejected the
“scope of the patent” test, a categorical rule that reverse
payment patent settlements in the Hatch-Waxman context
were immune from antitrust scrutiny so long as the asserted
anticompetitive effects fell within the scope of the patent. The
Court held that “reverse payment settlements . . . can
sometimes violate the antitrust laws,” 

, because “[a]n unexplained large reverse payment itself
would normally suggest that the patentee has serious doubts
about the patent’s survival,” thereby “suggest[ing] that the
payment’s objective is to maintain supracompetitive prices to
be shared among the patentee and the challenger rather than
face what might have been a competitive market,” 

Consequently, the Court held, plaintiffs should be able to
prove “[t]he existence and degree of any anticompetitive
consequence” of such an agreement under the traditional rule-
of-reason test. 

       Justice Breyer framed the issue of reverse payments
then before the Court as follows:

       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 the patented product
       until the patent’s term expires, and (2)
       Company A, the patentee, to pay B many




                              22
       millions of dollars. Because the settlement
       requires the patentee to pay the alleged
       infringer, rather than the other way around, this
       kind of settlement agreement is often called a
       “reverse payment” settlement agreement. And
       the basic question here is whether such an
       agreement can sometimes unreasonably
       diminish competition in violation of the
       antitrust laws. See, e.g., 15 U.S.C. § 1 (Sherman
       Act prohibition of “restraint[s] of trade or
       commerce”). Cf. Palmer v. BRG of Ga., Inc.,
       

(1990) (per curiam) (invalidating
       agreement not to compete).

.

        The Court of Appeals for the Eleventh Circuit had
applied its scope-of-the-patent test to the following facts. See

FTC v. Watson Pharm., Inc., 

(11th
Cir. 2012), rev’d sub nom. Actavis, 

. Solvay
Pharmaceuticals developed a brand-name drug called
AndroGel in 1999 and obtained a relevant patent in 2003.
Later in 2003, three would-be generic AndroGel
manufacturers, Actavis first (soon followed by Paddock
Laboratories and Par Pharmaceutical), filed ANDAs with
paragraph IV certifications. Solvay sued. Thirty months into
the litigation, the FDA approved Actavis’s first-filed ANDA.

.

       The parties settled in 2006. Under the terms of the
settlement,




                               23
       Actavis agreed that it would not bring its
       generic to market until August 31, 2015, 65
       months before Solvay’s patent expired (unless
       someone else marketed a generic sooner).
       Actavis also agreed to promote AndroGel to
       urologists. The other generic manufacturers
       made roughly similar promises. And Solvay
       agreed to pay millions of dollars to each
       generic—$12 million in total to Paddock; $60
       million in total to Par; and an estimated $19–
       $30 million annually, for nine years, to Actavis.
       The companies described these payments as
       compensation for other services the generics
       promised to perform, but the FTC contends the
       other services had little value.

        The FTC sued the settling manufacturers for violating
the antitrust laws by agreeing to share Solvay’s monopoly
profits. 

The FTC contended Solvay’s reverse
payments to the generic manufacturers were compensation for
the generics’ agreements not to compete with AndroGel. 

The Court of Appeals for the Eleventh Circuit
disagreed, and affirmed the dismissal of the FTC’s complaint,
on the ground “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.”
Watson 

. In its view, “patent
holder[s] had a lawful right to exclude others from the
market.” 

(internal quotation marks omitted). Even
though a patent might be found invalid if litigated, the court




                               24
thought “the FTC’s approach would put that burden back on
the parties and the court, undo much of the benefit of settling
patent litigation, and discourage settlements,” in derogation of
the important public policy interests served by settlement. 

        The Supreme Court disagreed. It began with the
premise that an asserted patent “may or may not be valid, and
may or may not be infringed.” 

.
Although a valid patent gives its holder the right to
“‘exclude[] all . . . from the use of the protected process or
product’” and charge prices of its choosing, including
supracompetitive prices, “an invalidated patent carries with it
no such right. And even a valid patent confers no right to
exclude products or processes that do not actually infringe.”

original) (quoting United States v. Line
Material Co., 

, 308 (1948)). And from the time
of their paragraph IV certification, the generics in Actavis had
challenged both the validity and the scope of the AndroGel
patent. 

observed that, as alleged by the FTC,
Solvay had “agreed to pay the [generics] many millions of
dollars to stay out of its market, even though the [generics]
did not have any claim that [Solvay] was liable to them for
damages.” 

was concerned that this “unusual”
“form of settlement” could “have significant adverse effects
on competition” and thought, accordingly, “that patent and
antitrust policies are both relevant in determining the ‘scope
of the patent monopoly’—and consequently antitrust law
immunity—that is conferred by a patent.” 

cited several of its earlier cases for this
proposition that courts must balance “the lawful restraint on
trade of the patent monopoly and the illegal restraint




                              25
prohibited broadly by the Sherman Act.” 

); see also United States v. U.S.
Gypsum Co., 

, 390-91 (1948). The antitrust
question, it reasoned, must be answered “by considering
traditional antitrust factors such as likely anticompetitive
effects, redeeming virtues, market power, and potentially
offsetting legal considerations present in the circumstances,
such as here those related to patents.” 

. Only then can a court conclude “[w]hether a particular
restraint lies ‘beyond the limits of the patent monopoly.’” 

(quoting 

(Roberts, C.J.,
dissenting)). By contrast, Chief Justice Roberts, joined in
dissent by Justices Scalia and Thomas, would have held that
“the scope of the patent—i.e., the rights conferred by the
patent—forms the zone within which the patent holder may
operate without facing antitrust liability.” 

(Roberts, C.J., dissenting). In the dissenters’ view, “a patent
holder acting within the scope of its patent does not engage in
any unlawful anticompetitive behavior; it is simply exercising
the monopoly rights granted to it by the Government.” 

And, they maintained, the patent’s scope “should be
determined by reference to patent law.” 

original).

       As noted, the Court explained that its “precedents
make clear that patent-related settlement agreements can
sometimes violate the antitrust laws.” 

(majority
opinion) (citing United States v. Singer Mfg. Co., 

(1963); Line 

-11; United States
v. New Wrinkle, Inc., 

, 378-80 (1952)). The
Court viewed these prior cases as “seek[ing] to accommodate
patent and antitrust policies, finding challenged terms and
conditions unlawful unless patent law policy offsets the




                              26
antitrust law policy strongly favoring competition,”
notwithstanding the possible validity or infringement of the
patent in question. 

see 

(Roberts, C.J.,
dissenting) (“The majority seems to think that even if the
patent is valid, a patent holder violates the antitrust laws
merely because the settlement took away some chance that
his patent would be declared invalid by a court.” (emphasis in
original)). Rejecting the dissent’s view “that a patent holder
may simply ‘pa[y] a competitor to respect its patent’ and quit
its patent invalidity or noninfringement claim without any
antitrust scrutiny whatever,” 

(majority opinion)
(alteration in original) (quoting 

(Roberts, C.J.,
dissenting)), the Court reasoned that “[t]he dissent does not
identify any patent statute that it understands to grant such a
right to a patentee, whether expressly or by fair implication,”

right, the Court thought, “would be difficult to
reconcile . . . with the patent-related policy of eliminating
unwarranted patent grants so the public will not ‘continually
be required to pay tribute to would-be monopolists without
need or justification.’” 

Inc. v. Adkins, 

, 670 (1969)).18

   18
        Unlike the majority, the dissenters read the Court’s
precedents to stand for the proposition that a patentee’s
actions are subject to antitrust scrutiny only when they “go
beyond the monopoly powers conferred by the patent,” with
just two exceptions—settlement of sham litigation and
litigation involving patents obtained by fraud on the Patent
and Trademark Office. 

(Roberts,
C.J., dissenting); see also 

. No case cited by the
majority, they said, subjected a patent settlement “to antitrust
scrutiny merely because the validity of the patent was
uncertain,” and no reference to “a ‘general procompetitive




                              27
        The Court further explained that its holding should not
be read to subject to antitrust scrutiny “commonplace forms”
of settlement, such as tender by an infringer of less than the
patentee’s full demand. See 

payments, it said,
are not such “familiar settlement forms.” 

reverse
payment settlement, the patentee “pays money . . . purely so
[the alleged infringer] will give up the patent fight.” 

are said to flow in “reverse” because “a party with
no claim for damages (something that is usually true of a
paragraph IV litigation defendant) walks away with money
simply so it will stay away from the patentee’s market. That,”
the Court thought, “is something quite different,” and
something that falls outside accepted “traditional examples”
of settlement. 

potential concern “that antitrust
scrutiny of a reverse payment agreement would 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,” the Court identified “five sets of
considerations” militating in favor of permitting antitrust
scrutiny. 

First, the Court saw in reverse payments
the “potential for genuine adverse effects on competition.” 

v. Ind. Fed’n of Dentists, 

, 460-61
(1986)). The inference may be drawn from a reverse payment
that the patent holder is paying the alleged infringer to defend

thrust’” of the Hatch-Waxman Act should be interpreted “to
unsettle the established relationship between patent and
antitrust law,” especially when “Congress has repeatedly
declined to enact legislation addressing the issue.” 

(quoting 

(majority opinion)).




                               28
“a right it already claims but would lose if the patent litigation
were to continue and the patent were held invalid or not
infringed by the generic product.” 

other
settlement terms might allow a generic challenger to enter the
market prior to patent expiration, and thus permit some
competition benefiting consumers, a reverse payment
inducing delay—i.e., a “payment in return for staying out of
the market—simply keeps prices at patentee-set
[supracompetitive] levels . . . while dividing that return
between the challenged patentee and the patent challenger.”

       Second, the Court thought “these anticompetitive
consequences will at least sometimes prove unjustified.” 

Although a payment may be justified if, for
example, it approximates litigation expenses saved by the
settlement or is true “compensation for other services that the
generic has promised to perform,” it may not be justified
when used “to prevent the risk of competition” by eliminating
“the risk of patent invalidation or a finding of
noninfringement.” 

see also, e.g., 

the antitrust harm occurs when “the payment’s objective is to
maintain supracompetitive prices to be shared among the
patentee and the challenger rather than face what might have
been a competitive market—the very anticompetitive
consequence that underlies the claim of antitrust
unlawfulness”). At the same time, the Court did not rule out
other justifications.

        Third, the Court reasoned, in reverse payment
situations “the patentee likely possesses the power to bring”
about this anticompetitive harm. 

does a patent
protect such market power, but the size of a reverse payment




                               29
may serve as a proxy for this power because a firm without
such power (and the supracompetitive profits that power
enables) is unlikely to buy off potential competitors. 

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.” 

Instead, the
anticompetitive harm from such a payment appears not to be
that the patentee is reaping supracompetitive monopoly
profits from a decidedly invalid or noninfringed patent, but
rather that there is a risk that the patent-enabled monopoly is
unwarranted, and foreclosing such a challenge harms
consumers. See 

(“[T]he payment (if otherwise
unexplained) likely seeks to prevent the risk of competition.
And, as we have said, that consequence constitutes the
relevant anticompetitive harm.”).19

       Fifth, parties may still find other ways to settle, such as
“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.” 

The Court emphasized, however, that “[i]f the basic
reason [for the reverse payment] is a desire to maintain and to
share patent-generated monopoly profits, then, in the absence
of some other justification, the antitrust laws are likely to
forbid the arrangement.” 

also, e.g., 

(Roberts, C.J.,
dissenting) (“The majority seems to think that even if the
patent is valid, a patent holder violates the antitrust laws
merely because the settlement took away some chance that
his patent would be declared invalid by a court.” (emphasis in
original)).




                               30
       The Court concluded that, because of the fact-specific
nature and the complexity of reverse payment agreements,
courts should apply the traditional rule-of-reason analysis.
See 

                            B.

       We do not believe Actavis’s holding can be limited to
reverse payments of cash. For the following reasons, we think
that a no-AG agreement, when it represents an unexplained
large transfer of value from the patent holder to the alleged
infringer, may be subject to antitrust scrutiny under the rule of
reason. We find the allegations here sufficient to state such a
claim under the Sherman Act.20

                                1.

       In the Actavis Court’s view, reverse payments are
problematic because of their potential to negatively impact
consumer welfare by preventing the risk of competition,
which arises from expected litigation outcomes. See 

. The Court’s reasoning was not that reverse
payments per se violate the antitrust laws, or are per se
anticompetitive. To the contrary, the Court declined to
“abandon[] . . . the ‘rule of reason’ in favor of presumptive
rules (or a ‘quick-look’ approach),” which are “appropriate
only where an observer with even a rudimentary
understanding of economics could conclude that the
arrangements in question would have an anticompetitive
effect on customers and markets.” 

(internal
quotation marks omitted). Instead, the Court focused on

   20
        See supra note 3; infra note 35.




                                31
whether a reverse payment could have an anticompetitive
effect or, alternatively, whether it was reasonable
compensation for litigation costs or the value of services. In
other words, the Court reasoned that “even a small risk of
invalidity” may not justify a “large payment” (presumably
enabled by “patent-generated monopoly profits”) that “likely
seeks to prevent the risk of competition.” 

And,
the Court reiterated, it is the prevention of that risk of
competition—eliminating “the risk of patent invalidation or a
finding of noninfringement” by “paying the challenger to stay
out” of the market (for longer than the patent’s strength
would otherwise allow)—that “constitutes the relevant
anticompetitive harm,” which must then be analyzed under
the rule of reason. 

         It seems to us that no-AG agreements are likely to
present the same types of problems as reverse payments of
cash. The no-AG agreement here may be of great monetary
value to Teva as the first-filing generic. In Actavis, the
Supreme Court recognized generally that the 180-day
exclusivity period is “possibly ‘worth several hundred million
dollars,’” and may be where the bulk of the first-filer’s profits
lie. 

(quoting C. Scott Hemphill, Paying for Delay:
Pharmaceutical Patent Settlement as a Regulatory Design
Problem, 81 N.Y.U. L. Rev. 1553, 1579 (2006)).21 There are

   21
      In addition, a comprehensive FTC study suggests that
having to compete with an authorized generic will likely both
cut the generic’s sales and force down its price: “the presence
of authorized generic competition reduces the first-filer
generic’s revenues by 40 to 52 percent, on average.” FTC,
Authorized Generic Drugs: Short-Term Effects and Long-
Term       Impact        iii     (2011),      available      at




                               32
also plausible indicia that this pattern held true here: The
Amici States point out that “[p]ublic records show that
generic sales of Lamictal in 2008 were some 671 million
dollars,” so the no-AG agreement “was clearly worth millions
of dollars, if not hundreds of millions of dollars[,] to the
generic.” Amici States’ Br. 16. And the FTC suggests, using
sales of the drug Paxil as a yardstick, that GSK’s no-AG
agreement would have been worth hundreds of millions of
dollars to Teva. Appellants’ Br. 24.22

http://www.ftc.gov/os/2011/08/2011genericdrugreport.pdf;
see FTC Amicus Br. 8 (“Prices fall further when additional
generic competitors enter . . . .” (citing FTC, Pay-for-Delay:
How Drug Company Pay-Offs Cost Consumers Billions 8
(2010),                       available                     at
http://www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf);
FTC Amicus Br. 12 (“[G]eneric wholesale prices average 70
percent of the pre-entry brand-name drug price when the first-
filer faces an AG, compared to 80 percent of the brand price
when it does not.” (citing FTC, Authorized Generic 

)).
   22
       “The U.S. sales of Paxil were roughly equivalent to
those of Lamictal in the year before each product faced
generic competition ($2.3 billion and $2.2 billion,
respectively).” Appellants’ Br. 24 (quoting FTC Br. as
Amicus Curiae at 8, Lamictal, 

. 560 (ECF No.
89-3)). The magnitude of these figures is proportionate to the
estimated $2.6 billion average cost of developing a new
brand-name drug. See Tufts Ctr. for the Study of Drug Dev.,
Briefing: Cost of Developing a New Drug (Nov. 18, 2014),
available                                                   at
http://csdd.tufts.edu/files/uploads/Tufts_CSDD_briefing_on_
RD_cost_study_-_Nov_18,_2014..pdf.




                             33
       At the same time, a brand’s commitment not to
produce an authorized generic means that it must give up the
valuable right to capture profits in the new two-tiered market.
The no-AG agreement transfers the profits the patentee would
have made from its authorized generic to the settling
generic—plus potentially more, in the form of higher prices,
because there will now be a generic monopoly instead of a
generic duopoly. Thus, “the source of the benefit to the
claimed infringer is something costly to the patentee.” Aaron
Edlin et al., Activating Actavis, Antitrust, Fall 2013, at 16, 22
n.22. Absent a no-AG promise, launching an authorized
generic would seem to be economically rational for the brand.
For this reason, the fact that the brand promises not to launch
an authorized generic (thereby giving up considerable value
to the settling generic) makes the settlement something more
than just an agreed-upon early entry: it “may instead provide
strong evidence that the patentee seeks to induce the generic
challenger to abandon its claim with a share of its monopoly
profits that would otherwise be lost in the competitive
market.” 

.

       The anticompetitive consequences of this pay-for-
delay may be as harmful as those resulting from reverse
payments of cash. If the brand uses a no-AG agreement to
induce the generic to abandon the patent fight, the chance of
dissolving a questionable patent vanishes (and along with it,
the prospects of a more competitive market). As with a
reverse payment of cash, a brand agreeing not to produce an
authorized generic may thereby have “avoid[ed] the risk of
patent invalidation or a finding of noninfringement.” 

In addition, when the parties’ settlement includes a no-
AG agreement, the generic also presumably agrees to an early




                               34
entry date that is later than it would have otherwise
accepted.23 And during this time, the brand’s monopoly
remains in force. Once the generic enters, moreover, it faces
no competition with other generics at all.

       Antitrust law is designed to protect consumers from
arrangements that prevent competition in the marketplace.
See, e.g., 

; 

(Roberts,
C.J., dissenting); accord XII Areeda & Hovenkamp, supra,
¶ 2046c (2014 Supp.). The District Court here held that “the
Supreme Court considered a reverse payment to involve an
exchange of money” because “when the Supreme Court said
‘payment’ it meant a payment of money.” Lamictal, 18 F.
Supp. 3d at 568. But, we think, a no-AG agreement could
likewise “prevent the risk of competition.” 

; cf. XII Areeda & Hovenkamp, supra, ¶ 2046c1 (2014
Supp.) (explaining that under a “pay-for-delay settlement . . .
consumer welfare remains the same as it would be under
continued monopoly production by a single firm”); FTC
Amicus Br. 22 (“It is not the transfer of cash or the form of
reverse payment that triggers antitrust concern; it is the
impact of that payment on consumer welfare.”). We do not


   23
       When parties compromise on an early-entry date
alone—rather than an early-entry date plus valuable
consideration—it is possible that they may compromise on an
early-entry date reflecting their assessment of the strength of
the patent. The concern with combining an early-entry date
with the valuable consideration of a no-AG agreement is that
the generic manufacturer may be willing to accept a later
early-entry date without any corresponding benefit to
consumers.




                              35
believe the Court intended to draw such a formal line.24 Nor
did the Actavis Court limit its reasoning or holding to cash
payments only.25

                               2.

       Defendants contend that no-AG agreements are
distinguishable from reverse payments because they are in
essence “exclusive licenses” and patent law expressly

   24
       Cf., e.g., Cont’l T.V., Inc. v. GTE Sylvania Inc., 

, 58-59 (1977) (“[D]eparture from the rule-of-reason
standard must be based upon demonstrable economic effect
rather than . . . upon formalistic line drawing.”); United States
v. Dentsply Int’l, Inc., 

, 189 (3d Cir. 2005) (“The
Supreme Court on more than one occasion has emphasized
that economic realities rather than a formalistic approach
must govern review of antitrust activity.” (citing Eastman
Kodak Co. v. Image Tech. Servs., Inc., 

, 466-67
(1992))); Michael A. Carrier, Payment After Actavis, 

. Rev. 7, 41-44 (2014).
   25
       The dissent recognized the majority’s reasoning could
reach noncash transactions. See 

(Roberts, C.J., dissenting) (“As in any settlement, Solvay
gave its competitors something of value (money) and, in
exchange, its competitors gave it something of value
(dropping their legal claims).”); 

(“[The majority’s]
logic . . . cannot possibly be limited to reverse-payment
agreements . . . . The Government’s brief acknowledges as
much, suggesting that if antitrust scrutiny is invited for such
cash payments, it may also be required for ‘other
consideration’ and ‘alternative arrangements.’”).




                               36
contemplates exclusive licenses.26 They argue the Actavis
Court rejected the dissent’s arguments in part because the
dissent could “not identify any patent statute that it
understands to grant such a right to a patentee, whether
expressly or by fair implication.” 

;
see GSK Br. 22-23, 34; Teva Br. 22-26. They suggest that if
“the patent statute specifically gives a right to restrain
competition in the manner challenged,” 

(internal quotation marks omitted), such conduct is
immune from antitrust scrutiny. See GSK Br. 22-23; Teva Br.
22-26, 34. In short, defendants argue GSK’s concession not to
produce an authorized generic during Teva’s 180-day
exclusivity period is an “exclusive license” exempt from
antitrust scrutiny.

       But the “right” defendants seek is not in fact a
patentee’s right to grant licenses, exclusive or otherwise.27

   26
       See 35 U.S.C. § 261 (“The . . . patentee, or his assigns
or legal representatives may in like manner grant and convey
an exclusive right under his application for patent, or patents,
to the whole or any specified part of the United States.”).
   27
      We do not believe the no-AG agreement was in fact an
“exclusive” license. “Ordinarily, to say that a licensee’s right
is exclusive is to mean that no one other than that licensee,
not even the licensor/patentee, may practice the patent.” III
Areeda & Hovenkamp, supra, ¶ 707a (3d ed. 2008). Here, of
course, the no-AG agreement permitted both the patentee
(GSK) and the challenger (Teva) to make bioequivalent
drugs. Because both GSK and Teva could practice the patent,
Teva’s license was therefore not exclusive, but rather
imposed a restriction on the patentee that prevented a certain
form of competition (on bioequivalent drugs labeled




                              37
Instead, it is a right to use valuable licensing in such a way as
to induce a patent challenger’s delay. The Actavis Court
rejected the latter. The thrust of the Court’s reasoning is not
that it is problematic that money is used to effect an end to the
patent challenge, but rather that the patentee leverages some
part of its patent power (in Actavis, its supracompetitive
profits) to cause anticompetitive harm—namely, elimination
of the risk of competition. There, the patentee gave the
challenger a license to enter 65 months before patent
expiration, plus a reverse payment of “millions of dollars.”

. This reverse payment was not
immunized, of course, simply because of that early-entry

“generics”). And, as we have said before, “Where the license
restriction results primarily in benefits for the licensees rather
than the patentee, the anticompetitive restriction cannot be
justified as a subsidy for the patentee’s inventive activity.”
Mannington Mills, Inc. v. Congoleum Indus., Inc., 

, 1071 (3d Cir. 1979). Indeed, “[p]atents give no
protection from the prohibitions of the Sherman Act . . . when
the licenses are used, as here, in the scheme to restrain.” New

; see also, e.g., Moraine Prods. v.
ICI Am., Inc., 

, 145 (7th Cir. 1976) (“Where a
patent license is used to protect the licensee in addition to the
patentee or is used to allow the licensees to divide a market
among themselves, thus enabling them jointly to regiment an
industry under the guise of a patent license, there is good
reason to declare such a restrictive scheme illegal.”). The
Actavis Court reaffirmed this broader principle. See, 

(“[P]atent and antitrust policies are both
relevant in determining the ‘scope of the patent monopoly’—
and consequently antitrust law immunity—that is conferred
by a patent.”).




                               38
“license.” Similarly, the fact that a patent holder may
generally have the right to grant licenses, exclusive or
otherwise, does not mean it also has the right to give a
challenger a license along with a promise not to produce an
authorized generic—i.e., a promise not to compete—in order
to induce the challenger “to respect its patent and quit [the
competitor’s] patent invalidity or noninfringement claim
without any antitrust scrutiny.” 

(internal quotation
marks omitted). In the Actavis Court’s view, the question is
not one of patent law, but of antitrust law, the latter of which
invalidates “the improper use of [a patent] monopoly.” 

(alteration in original) (quoting Line 

). But see 

(Roberts, C.J., dissenting). And as
we read the Court’s opinion, even exclusive licenses cannot
avoid antitrust scrutiny where they are used in
anticompetitive ways. See 

(citing Palmer, 

); 

(holding an agreement not to
compete based on an exclusive copyright license28 “unlawful
on its face”). We make no statement about patent licensing
more generally. But in this context we believe the fact that the
Patent Act expressly authorizes licensing does not necessarily




   28
       The Supreme Court opinion does not say what kind of
“exclusive license” it is referring to, but the Eleventh
Circuit’s opinion states, “BRG and HBJ disavow any intent to
restrain trade and claim that their agreement is nothing more
than an ordinary copyright royalty arrangement which courts
have routinely sustained.” Palmer v. BRG of Ga., Inc., 

, 1434 (11th Cir. 1989) (internal quotation marks
omitted), rev’d, 

.




                              39
mean it also authorizes reverse payments to prevent generic
competition.29
       We also disagree with defendants’ attempt to
recharacterize Teva’s gain as resulting from its early entry
alone. First, that characterization is inaccurate as a descriptive
matter: What GSK gave Teva was a 180-day monopoly over
the generic market. The first-filing generic cannot capture this
value by early entry alone. It can only hope to obtain this
value with the brand’s self-restraint, and here, without GSK’s
no-AG commitment, GSK allegedly would have introduced
an AG. Second, although we agree that the Actavis “Court

   29
       The defendants’ arguments are much like those rejected
by the majority in Actavis. The disagreement in the Court was
fundamental. In the dissenters’ view, “a patent claim cannot
possibly impose unlawful anticompetitive harm if the patent
holder is acting within the scope of a valid patent and
therefore permitted to do precisely what the antitrust suit
claims is 

(Roberts, C.J.,
dissenting) (emphasis in original). The dissenters viewed the
majority as “impos[ing] antitrust liability based on the
parties’ subjective uncertainty about [a] legal conclusion,”
namely, whether a patent is valid (and it is one or the other),
because “[t]he majority seems to think that even if the patent
is valid, a patent holder violates the antitrust laws merely
because the settlement took away some chance that his patent
would be declared invalid by a court.” 

original). In fact, the dissenters perceived a slippery slope in
that the majority’s “logic—that taking away any chance that a
patent will be invalidated is itself an antitrust problem—
cannot possibly be limited to reverse-payment agreements, or
those that are ‘large.’” 

(emphasis in original)
(quoting 

(majority opinion)).




                               40
expressly identified early-entry licensing as a traditional form
of settlement whose legality the opinion took pains not to
disturb,” Teva Br. 25-26,30 a no-AG agreement is no more
solely an early-entry licensing agreement than the settlement
in Actavis itself, where entry was permitted 65 months before
patent expiration. 

.
Notwithstanding such “early entry,” the antitrust problem was
that, as the Court inferred, entry might have been earlier,
and/or the risk of competition not eliminated, had the reverse
payment not been tendered. See 

(“They 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.”); see also FTC Amicus Br. 21-22 (“[C]ompetitors do
not normally raise antitrust concerns if they agree on a date
for generic entry but do not simultaneously agree that the
brand-name manufacturer will compensate the generic
company for staying out of the market until that date, thereby
sharing (while enlarging) their aggregate pool of monopoly
profits.”).

                               3.

       Defendants present additional arguments as to why no-
AG agreements, as “exclusive licenses,” should not be
subjected to antitrust scrutiny. Noting that public policy

   30
      See 

; cf. 

(“[N]othing in the rule of reason test that we adopt
here limits the ability of the parties to reach settlements based
on a negotiated entry date for marketing of the generic
drug . . . .”).




                               41
favors settlements, they contend that subjecting such
agreements to scrutiny will discourage settlements. GSK Br.
37. Furthermore, they contend that “courts should not review
pro-competitive conduct to determine whether an even more
pro-competitive transaction exists.” GSK Br. 37 (citing
Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko,
LLP, 

, 415-16 (2004) (“The Sherman Act . . .
does not give judges carte blanche to insist that a monopolist
alter its way of doing business whenever some other approach
might yield greater competition.” (citation omitted))); see
Teva Br. 32.

       But Actavis addressed and rejected these arguments.
First, the Court thought the possible discouragement of
settlements was “outweigh[ed]” by other considerations and
stated that “parties may well find ways to settle patent
disputes without the use of reverse payments.” Actavis, 133 S.
Ct. at 2237.31 But whatever the effect on settlements, we do

   31
        The Court was unpersuaded by the dissenters’
arguments in this vein. The dissenters contended there was no
empirical evidence that most reverse payment settlements
occur in the Hatch-Waxman context, and that payments from
patentee to alleged infringer “are a well-known feature of
intellectual property litigation, and reflect an intuitive way to
settle such disputes.” 

(Roberts,
C.J., dissenting). The Court, however, thought that
“[a]pparently most if not all reverse payment settlement
agreements arise in the context of pharmaceutical drug
regulation, and specifically in the context of suits brought
under statutory provisions allowing a generic drug
manufacturer (seeking speedy marketing approval) to
challenge the validity of a patent owned by an already-




                               42
not perceive how the noncash nature of no-AG agreements
alters that balance. Second, we think Trinko inapposite.
Actavis does not stand for the proposition that parties must
reach the most procompetitive settlements possible. Instead,
we read Actavis to hold that antitrust law may prohibit
settlements that are anticompetitive because, without
justification, they delay competition for longer than the
patent’s strength would otherwise permit.32

approved brand-name drug owner.” 

(majority
opinion). Similarly, although the dissenters contended that
“[w]hile the alleged infringer may not be suing for the patent
holder’s money, it is suing for the right to use and market the
(intellectual) property, which is worth money,” 

(Roberts, C.J., dissenting) (emphasis in original), the Court
thought reverse payments “unusual,” 

(majority
opinion). The dissenters also thought that the Court’s holding
would discourage settlement even though “the right to settle
generally accompanies the right to litigate in the first place.”

(Roberts, C.J., dissenting). They postulated that
“the majority’s decision may very well discourage generics
from challenging pharmaceutical patents in the first place” by
“[t]aking the prospect of settlements off the table—or limiting
settlements to an earlier entry date for the generic, which may
still be many years in the future.” 

   32
        In addition, Trinko dealt with different questions
regarding unlawful monopolization and the refusal to deal—
set against the background of “the long recognized right of [a]
trader or manufacturer engaged in an entirely private
business, freely to exercise his own independent discretion as
to parties with whom he will 

(alteration in original) (quoting United States v. Colgate &
Co., 

, 307 (1919))—and the role of the




                              43
                               4.

        For the reasons we have explained, we think this no-
AG agreement, because it may represent an unusual,
unexplained transfer of value from the patent holder to the
alleged infringer that cannot be adequately justified—whether
as compensation for litigation expenses or services, or
otherwise33—is subject to antitrust scrutiny under the rule of
reason. But even if that is the rule, defendants contend,
plaintiffs fail to state a claim under Bell Atlantic Corp. v.
Twombly, 

(2007), and Ashcroft v. Iqbal, 

(2009), because their “allegations are far too
speculative to satisfy their burden of plausibly alleging that
the settlement was anticompetitive.” See GSK Br. 44-45. In
particular, defendants argue that “[p]laintiffs fail to plausibly
allege that in this but-for world, the parties would have
successfully negotiated an alternative, competition-
maximizing agreement,” Teva Br. 44; that continued
litigation in favor of settlement “would have yielded a more
competitive result,” Teva Br. 45; or that Teva would have
launched their generics “at risk,” Teva Br. 46.

       We believe plaintiffs’ allegations, and the plausible
inferences that can be drawn from them, are sufficient to state
a rule-of-reason claim under Twombly and Iqbal for violation
of the Sherman Act on the ground that GSK sought to induce
Teva to delay its entry into the lamotrigine tablet market by


Telecommunications Act of 1996, which focuses on a
different goal of eliminating certain monopolies, 

   33
       See 

(“There may be other
justifications.”).




                               44
way of an unjustified no-AG agreement. As recited earlier,
plaintiffs alleged that GSK agreed not to launch a competing
authorized generic during Teva’s 180-day exclusivity period,
which was to begin near the expiration of the ’017 patent; that
such promises can be worth “many millions of dollars of
additional revenue”; that “GSK had an incentive to launch its
own authorized generic versions of tablets”; that Teva had a
history of launching “at risk”; and that the ’017 patent was
likely to be invalidated—as, in fact, its main claim had been.
Because marketing an authorized generic was allegedly in
GSK’s economic interest, its agreement not to launch an
authorized generic was an inducement—valuable to both it
and Teva—to ensure a longer period of supracompetitive
monopoly profits based on a patent at risk of being found
invalid or not infringed. (Indeed, Teva asserted in other
litigation that the no-AG agreement “formed part of the
inducement to Teva to relinquish the rights and defenses it
was asserting against GSK in the Patent Litigation.” JA 76
(alteration and emphases omitted).) And although plaintiffs
concede that Teva entered the lamotrigine chewables market
about 37 months early, see, e.g., GSK Br. 7, the chewables
market, allegedly worth only $50 million annually, was
orders of magnitude smaller than the alleged $2 billion tablet
market the agreement is said to have protected. Accordingly,
at the pleading stage plaintiffs have sufficiently alleged that
any procompetitive aspects of the chewables arrangement
were outweighed by the anticompetitive harm from the no-
AG agreement.34

   34
       It may also be (though we do not decide) that
“procompetitive effects in one market cannot justify
anticompetitive effects in a separate market” (i.e., the
lamotrigine tablet market). Amicus Br. Nat’l Ass’n Chain




                              45
        Moreover, we do not read Actavis to require
allegations that defendants could in fact have reached another,
more competitive settlement. Actavis embraces the concept
that a patent “may or may not be valid, and may or may not
be 

, and holds that the
anticompetitive harm is not certain consumer loss through
higher prices, but rather the patentee’s “avoid[ance of] the
risk of patent invalidation or a finding of noninfringement”—
that is, “prevent[ion of] the risk of competition,” 

,
beyond what the patent’s strength would otherwise allow—
and, thus, consumer harm. In other words, under the
substantive standard, the question is not whether the
defendants have only possibly acted unlawfully, but see Teva
Br. 43, but whether they have acted unlawfully by seeking to
prevent competition. Plaintiffs have sufficiently pleaded as
much.35

Drug Stores in Support of Appellants 27-28 (citing, inter alia,
Paladin Assocs., Inc. v. Mont. Power Co., 

,
1157 n.11 (9th Cir. 2003)); see Paladin 

n.11 (“It may be . . . that this procompetitive effect
should not be considered in our rule of reason analysis, based
on the theory that procompetitive effects in a separate market
cannot justify anti-competitive effects in the market for
pipeline transportation under analysis.”) (citing United States
v. Topco Assocs., 

, 610 (1972); see also 

(“[Competition] cannot be foreclosed with
respect to one sector of the economy because certain private
citizens or groups believe that such foreclosure might
promote greater competition in a more important sector of the
economy.”).
   35
      We do not decide the question of antitrust injury in
private actions such as this litigation, see generally, e.g., Ian




                               

.

       In the alternative, the District Court stated that “[i]t
finds that the settlement . . . would survive Actavis scrutiny
and is reasonable.” 

at 570. This was error. As
explained above, plaintiffs have sufficiently pleaded violation
of the antitrust laws so as to overcome defendants’ motion to
dismiss. If genuine issues of material fact remain after
discovery, the rule-of-reason analysis is for the finder of fact,
not the court as a matter of law.36

        In addition, the District Court mistook the “five sets of
considerations” that persuaded the Actavis Court “to conclude
that the FTC should have been given the opportunity to prove


Simmons et al., Viewing FTC v. Actavis Through the Lens of
Clayton Act Section 4, Antitrust, Fall 2013, at 24; In re
Niaspan Antitrust Litig., 

, 755-77 (E.D. Pa.
2014), nor do we preclude the parties from raising the issue
on remand.
   36
       See, e.g., Arizona v. Maricopa Cnty. Med. Soc’y, 

, 343 (1982) (“[T]he rule of reason requires the
factfinder to decide whether under all the circumstances of
the case the restrictive practice imposes an unreasonable
restraint on competition.”); In re Ins. Brokerage Antitrust
Litig., 

, 316 & n.12 (3d Cir. 2010) (discussing
the fact-bound, burden-shifting standard and noting that “[i]n
the event a genuinely disputed issue of fact exists regarding
the reasonableness of the restraint, the determination is for the
jury”).




                               47
its antitrust claim” under the rule of 

, as a redefinition of the “rule of reason” itself. But the
general contours of the rule of reason are well-mapped. See
generally, e.g., 

(citing Ind. Fed’n of 

); Deutscher Tennis Bund v. ATP Tour, Inc., 

, 829-30 (3d Cir. 2010). We recognize the Actavis
Court “le[ft] to the lower courts the structuring of [this type
of] rule-of-reason antitrust 

, and
that there may be some uncertainty as to how, exactly, a
“defendant may show in the antitrust proceeding that
legitimate justifications are present, thereby explaining the
presence of the challenged term and showing the lawfulness
of that term under the rule of reason,” 

(citing Ind.
Fed’n of 

). But the Court noted that
justifications might include “litigation expenses saved
through the settlement” or “compensation for other services
that the generic has promised to perform.” 

the Court left such details of how to apply the proper antitrust
theories to “the basic question—that of the presence of
significant unjustified anticompetitive consequences,” 

—it suggested “the antitrust laws are likely to forbid”
payment for delay (or, that is, to eliminate risk of patent
invalidity or noninfringement), 

       Here, the District Court thought the no-AG agreement
was “justified” because, although the settlement amount was
likely greater than litigation costs, “the consideration which
the parties exchanged in the settlement [wa]s reasonably
related to the removal of the uncertainty created by the
dispute.” Lamictal, 

at 570. That conclusion is
in tension with Actavis in that, without proper justification,
the brand cannot pay the generic simply to eliminate the risk
of competition. Nor did the court properly conclude “that the




                               48
potential for adverse effects on competition [wa]s minimal,”
or that the settlement was reasonable, because “the duration
of the No-AG Agreement was a relatively brief six months.”

harm plaintiffs allege—consistent
with Actavis—is that the promise of no authorized-generic
competition during those six months induced Teva to quit its
patent challenge. As discussed above, plaintiffs plausibly
allege this no-AG promise was of considerable value and thus
designed to protect GSK’s patents against the risk of
invalidation or noninfringement, rather than reimburse
litigation costs or compensate for services. Accordingly, the
District Court should have permitted the litigation to proceed
under the traditional rule-of-reason approach.

                              2.

       Under the traditional rule-of-reason analysis, the
factfinder must

      weigh all of the circumstances of a case in
      deciding whether a restrictive practice should be
      prohibited as imposing an unreasonable
      restraint on competition. The plaintiff bears an
      initial burden under the rule of reason of
      showing that the alleged combination or
      agreement produced adverse, anti-competitive
      effects within the relevant product and
      geographic markets. The plaintiff may satisfy
      this burden by proving the existence of actual
      anticompetitive effects, such as reduction of
      output, increase in price, or deterioration in
      quality of goods or services. Such proof is often
      impossible to make, however, due to the




                             49
      difficulty of isolating the market effects of
      challenged conduct. Accordingly, courts
      typically allow proof of the defendant’s market
      power instead. Market power, the ability to
      raise prices above those that would prevail in a
      competitive market, is essentially a surrogate
      for detrimental effects.
             If a plaintiff meets his initial burden of
      adducing adequate evidence of market power or
      actual anti-competitive effects, the burden shifts
      to the defendant to show that the challenged
      conduct promotes a sufficiently pro-competitive
      objective. . . . To rebut, the plaintiff must
      demonstrate that the restraint is not reasonably
      necessary to achieve the stated objective.

United States v. Brown Univ., 

, 668-69 (3d Cir.
1993) (alteration, citations, internal quotation marks, and
footnotes omitted).

       The Actavis Court provided initial guidance on how to
structure rule-of-reason litigation in the reverse payment
context. The Court explained that such antitrust questions
must be answered “by considering traditional antitrust factors
such as likely anticompetitive effects, redeeming virtues,
market power, and potentially offsetting legal considerations
present in the circumstances, such as here those related to
patents.” 

.

       First, to prove anticompetitive effects, the plaintiff
must prove payment for delay, or, in other words, payment to
prevent the risk of competition. See 

“[T]he
likelihood of a reverse payment bringing about




                             50
anticompetitive effects depends upon its size, its scale in
relation to the payor’s anticipated future litigation costs, its
independence from other services for which it might represent
payment, and the lack of any other convincing justification.”

       Second, the burden then shifts to the defendant to
show “that legitimate justifications are present, thereby
explaining the presence of the challenged term and showing
the lawfulness of that term under the rule of reason.” 

       The reverse payment, for example, may amount
       to no more than a rough approximation of the
       litigation expenses saved through the
       settlement. That payment may reflect
       compensation for other services that the generic
       has promised to perform—such as distributing
       the patented item or helping to develop a market
       for that item. There may be other justifications.

The Court does not foreclose other justifications,
and we need not decide today what those other justifications
might be.

       Finally, the plaintiff will have the opportunity to rebut
the defendant’s explanation.37




   37
     See generally, e.g., King Drug Co. of Florence v.
Cephalon, Inc., --- F. Supp. 3d ----, ----, No. 06-1797, 

, at *7-16 (E.D. Pa. Jan. 28, 2015).




                              51
       On remand, we invite the District Court to proceed
with the litigation under the traditional rule of reason,
tailored, as necessary, to the circumstances of this case.38
                                IV.

       For the foregoing reasons, we vacate the judgment of
the District Court and remand for further proceedings
consistent with this opinion.




   38
      We note that the rule of reason allows the court,
depending on the circumstances, to
        structure antitrust litigation so as to avoid, on
        the one hand, the use of antitrust theories too
        abbreviated to permit proper analysis, and, on
        the other, consideration of every possible fact or
        theory irrespective of the minimal light it may
        shed on the basic question—that of the presence
        of significant unjustified anticompetitive
        consequences.

. In addition, nothing in this
opinion precludes a defendant from prevailing on a motion to
dismiss or motion for summary judgment if, for example,
there is no dispute that, under the rule of reason, the
procompetitive benefits of a reverse payment outweigh the
payment’s alleged anticompetitive harm.




                               52