IP Law Daily, PATENT NEWS: High Court asked to consider “no-AG” patent settlement agreement, (Feb 25, 2016)

By Jeffrey May, J.D.

Drug makers SmithKline Beecham Corporation and Teva Pharmaceutical Industries Ltd. have asked the U.S. Supreme Court to review a Third Circuit decision holding that a settlement agreement between the firms resolving a patent dispute over the prescription anti-seizure drug Lamictal was subject to antitrust scrutiny. In their petition for a writ of certiorari, the companies questioned whether the decision of the U.S. Court of Appeals in Philadelphia that a patentee’s grant of an exclusive license as part of a patent settlement agreement must undergo antitrust scrutiny was consistent with the U.S. Supreme Court’s 2013 decision in FTC v Actavis, Inc., which held that a patentee who settles a patent challenge by making a “large” and “unexplained” reverse payment to the patent challenger is not protected by the antitrust immunity generally afforded to patentees (SmithKline Beecham Corp. v. King Drug Company of Florence, Inc., Dkt. 15-1055).

SmithKline, which does business as GlaxoSmithKline LLC (GSK), holds the patent for lamotrigine. Lamotrigine is marketed under the brand Lamictal. Generic pharmaceutical company Teva sought U.S. Food and Drug Administration approval to market a generic version of Lamictal. GSK sued Teva for patent infringement. Under a settlement resolving the dispute, in exchange for dropping its challenge to GSK’s patents, Teva was allowed to market generic lamotrigine before the relevant patent expired without competition from GSK’s own “authorized generic” for a certain period of time. Under a so-called “no-AG agreement,” GSK relinquished its right to produce the authorized generic version of the drug in competition with Teva’s generic version. Purchasers of lamotrigine brought an action, alleging that the terms of the settlement agreement between GSK and Teva violated federal antitrust law.

According to the Third Circuit, the issue was: whether the Supreme Court’s Actavis decision covered, 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 Act as against the rest of the world. The court held that Actavis could not be limited to reverse payments of cash.

GSK and Teva have asked the Supreme Court to weigh in because lower federal courts have adopted divergent tests and reached conflicting results on what constitutes a potentially improper “reverse payment” subject to antitrust review under Actavis. “Embedded in Actavis is a line between conduct that is authorized by patent law even though it might restrict competition in the near terms (such as the grant of an exclusive license), which is not subject to antitrust challenge for that reason and the alleged unusual reverse payments at issue there, which the Court emphasized were not authorized by law,” the petitioners contended. They are asking for a “bright line” that exclusive licenses are not actionable “payments” under Actavis because such licenses are expressly authorized by the Patent Act.

The petition for a writ of certiorari was filed on February 19 and was docketed on February 22. King Drug has waived its right to respond, which should expedite a decision on the petition.

Attorneys: Jay P. Lefkowitz (Kirkland & Ellis LLP) for SmithKline Beecham Corp. Bruce E. Gerstein (Garwin Gerstein & Fisher, LLP) for King Drug Company of Florence, Inc.

Companies: SmithKline Beecham Corp.; King Drug Company of Florence, Inc.; Teva Pharmaceutical Industries Ltd.

News: Patent