Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Commissioner Wright outlines FTC approach to pay-for-delay agreements, patent assertion entities in Beijing speech, (Sep 20, 2013)

By Tobias J. Gillett, J.D., LL.M.

FTC Commissioner Joshua D. Wright described the FTC’s recent efforts in challenging anticompetitive pay-for-delay agreements in the pharmaceutical industry and in addressing the activities of patent assertion entities (PAEs), in a September 16 speech before the Roundtable with Enforcers at the American Bar Association Section of International Law’s China—Inside and Out conference in Beijing.

Pay-for-delay agreements. Wright began his speech, entitled “Recent Antitrust Enforcement and Policy Initiatives at the U.S. Federal Trade Commission,” with a discussion of the FTC’s activities with respect to pharmaceutical pay-for delay agreements. He noted the Supreme Court’s recent decision in FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013), 2013-1 Trade Cases ¶78,419, in which the Court held pay-for-delay agreements subject to antitrust scrutiny under the traditional rule of reason standard.

The Commissioner highlighted six significant aspects of that decision, including (1) the Supreme Court’s articulation of the “genuine adverse effects” reverse payment settlements could have on competition; (2) the Court’s conclusion that the efficiency justifications for a payment must be assessed, and its consequent rejection of the FTC’s argument that the agreements should be subject to quick look analysis; (3) the “considerable room” the Court left for lower courts to structure the rule of reason analysis ; (4) the Court’s recognition that brand-name drug manufacturers likely have market power; (5) the Court’s holding that “it is normally not necessary to litigate patent validity” to determine the anticompetitive effects of a settlement; and (6) the Court’s recognition that reverse payments are not necessary for patent settlements in the pharmaceutical industry.

Wright then outlined the FTC’s pay-for-delay agenda in the wake of Actavis. He stated that the FTC intends to continue its litigation against Actavis and two generic manufacturers over the generic manufacturers’ agreement to abandon their patent challenges with respect to Actavis’ AndroGel drug and delay the marketing of a generic alternative in exchange for “exclusion payments.” The FTC also will continue its challenge to Cephalon’s pay-for-delay agreement with four generic manufacturers over its Provigil drug. Finally, the FTC will proceed with its current investigations into pay-for-delay agreements, examine new settlements filed with the FTC pursuant to the Medicare Modernization Act of 2003, consider potential procompetitive justifications for the settlements, and challenge agreements where appropriate.

Patent assertion entities. Wright next discussed the FTC’s activities related to PAEs. According to Wright, PAEs are “firms whose business model primarily focuses on purchasing and asserting patents,” generally without engaging in research, development, technology transfer, or manufacturing. He noted the FTC’s 2011 report identifying certain problems with the patent system, and its December 2012 public workshop on PAE activity.

PAEs have their defenders, Wright observed. He highlighted some of the potential benefits identified by some commentators, including generating efficiencies in the markets for patents and ideas, contributing to a more active secondary market for patents, increasing patent liquidity, permitting patent holders to dispose of patents they cannot maintain, and allowing companies to immediately recoup some research and development costs.

However, he also listed some of the criticisms leveled at PAEs, including the asymmetrical risks and greater incentives for patent enforcement created by the low risk of countersuits PAEs face, their lack of concern about disruptions to client relations, the reputational benefit rather than detriment they receive from being perceived as aggressive litigators, the low discovery costs they face, and the lower cost they have to pay for litigation due to contingency arrangements. In the eyes of some critics, these factors have allowed PAEs to sue on marginal claims, and have substantially increased PAEs’ share of patent infringement litigation.

However, Wright noted the lack of empirical data in this area. He observed that the FTC is currently considering using its Section 6(b) authority to conduct an empirical study regarding PAE activity.

News: Antitrust ConsumerProtection FederalTradeCommissionNews