Antitrust Law Daily Wrap Up, ANTITRUST NEWS: McSweeny discusses intersection of competition law and intellectual property, (Apr 22, 2016)

By Michael Menzhuber, J.D., LL.M.

"The aims of competition law and intellectual property are largely in harmony, but the intersection of these two fields can raise interesting and important questions," FTC Commissioner Terrell McSweeny told attendees at the GCR Live 3rd Annual IP & Antitrust USA Conference on April 20 in Washington, D.C.

In her keynote remarks, entitled "FTC Research, Enforcement, and Advocacy at the Intersection of Antitrust and IP," McSweeny noted that, to optimize innovation, a careful balance is required between competition and intellectual property protection. She explained that the FTC is confronting the question of how and when to draw the lines between competition and IP on a number of fronts, including: challenging anticompetitive reverse payments; studying the role played by patent assertion entities (PAEs); and ensuring that standard essential patents (SEPS) are used to encourage standard-setting and not to engage in "hold-up."

Pay-for-delay agreements. After touching on the FTC’s established enforcement regime for combatting reverse payment settlements ("pay-for-delay" agreements), McSweeny explained that: (1) the branded patent holder and the generic entrant each stand to make more money by sharing in the brand’s monopoly profits rather than competing; and (2) this conduct extends the brand’s monopoly power beyond the balance struck by Congress under the Hatch-Waxman Act and harms consumers who pay higher prices for prescription drugs.

McSweeny noted that the number of reverse payment settlements has decreased since a 2013 Supreme Court decision, which confirmed the potential harm to competition from reverse payments. However, questions of interpretation, including whether non-cash patent settlement payments can harm competition (a view that has been adopted by both the First and Third Circuits), remain.

After noting that another way for branded drug companies to delay generic competition is by denying generic companies the samples needed to complete FDA-required bioequivalence testing, McSweeny stated that the main question for competition enforcers is whether the facts support a finding of exclusionary conduct under Section 2 of the Sherman Act.

SEPS and hold-up. According to McSweeny, the FTC has been actively involved in study, advocacy, and enforcement in the standard-setting context and its work in this area has focused on standard essential patents (SEPs) and the issue of "hold-up." After discussing the SEP system, including "hold-up" and Fair, Reasonable, and Non-Discriminatory (FRAND) commitments in relation to the SEP-holder, she explained that the vast majority of SEP licenses are negotiated successfully without involving the courts or the agencies.

McSweeny stated that when courts have been asked to determine FRAND rates, their findings have tended to be substantially lower than the rates sought by the FRAND-encumbered SEP holders. She also noted that there may be a role for competition law when a licensing commitment to standard setting organization and its members is not honored.

PAEs. Another area potentially at the intersection of antitrust and intellectual property law, according to McSweeny, involves the activities of patent assertion entities (PAEs). Noting that not much is understood about PAEs and their impact on competition and innovation, McSweeny discussed efforts by the FTC to learn more. She did, state, however that the FTC has used its authority to address the deceptive use of patent demand letters and other potentially abusive tactics by PAEs.

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