Antitrust Law Daily Wrap Up, TOP STORY: Supreme Court Agrees to Consider Antitrust Challenge to Patent Settlement Agreements Between Drug Companies, (Dec 10, 2012)

By Jeffrey May, J.D.

The U.S. Supreme Court has agreed to consider the legality under the antitrust laws of reverse payment patent litigation settlements between brand name pharmaceutical companies and generic rivals. On December 7, the Court granted the FTC’s petition for review of a decision of the U.S. Court of Appeals in Atlanta (677 F.3d 1298, 2012-1 Trade Cases ¶77,865) affirming dismissal of an FTC action challenging patent litigation settlements concerning testosterone-replacement drug AndroGel. Justice Samuel Alito took no part in the consideration of the petition, FTC v. Watson Pharmaceuticals, Inc., Dkt. 12-416, which was filed with the Court on October 4.

At issue is a decision of the Eleventh Circuit, rejecting the FTC’s challenge to the so-called “reverse payment” or “pay-for-delay settlements” between Solvay Pharmaceuticals and would-be generic competitors Watson Pharmaceuticals and Paddock Pharmaceuticals. Generally speaking, pay-for-delay agreements are settlements of patent litigation in which a brand-name drug manufacturer pays its potential generic competitor to abandon a patent challenge and delay entry to the market. The FTC’s petition asked whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud, or instead are presumptively anticompetitive and unlawful.

The Eleventh Circuit had refused to accept the agency’s argument that the settlement was subject to challenge because it exceeded the potential exclusionary scope of the patent. Under Eleventh Circuit precedent, “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.” According to the FTC, the underlying patent had no exclusionary potential because the brand name drug company was “not likely to prevail” in the underlying infringement action against the generic drug companies. However, the appellate court did not want to decide what the likely outcome of settled patent infringement claims would have been.

Last month, respondent Solvay Pharmaceuticals said in its Supreme Court brief that it was respectfully acquiescing in the petition for writ of certiorari. The company stated that, even though it believed the Eleventh Circuit decision was correct, the split among the federal circuits called for Supreme Court resolution.

A recent Third Circuit decision in In Re: K-Dur Antitrust Litigation (677 F.3d 1298, 2012-2 Trade Cases ¶77,971) held that reverse payments settlements between patent holders and would-be generic competitors in the pharmaceutical industry should be reviewed under a “quick look” rule of reason analysis based on the economic realities of the reverse payment settlement.

Both the FTC and Solvay Pharmaceuticals told the Court that the agency’s challenge to the Androgel settlement would be a better vehicle for Supreme Court review of the pay-for-delay issue than the Third Circuit decision, which involved a private action challenging a settlement of two patent infringement cases involving the sustained-release potassium chloride drug K-Dur 20, made by Schering-Plough (now Merck). Two petitions are pending before the Court seeking review of the Third Circuit’s judgment in K-Dur.

Legislative Efforts

FTC Chairman Jon Leibowitz has said repeatedly that ending anticompetitive pay-for-delay agreements is one of the FTC’s top competition priorities. In addition to bringing court challenges to such deals, the agency has supported federal legislation prohibiting such arrangements.

Calling the Supreme Court's decision to hear the case “a positive step,” Senator Chuck Grassley (Iowa), ranking Member of the Senate Judiciary Committee, said that he would continue to press for legislation that would deter pay-for-delay settlements.

“Pay-for-delay settlements between brand name and generic drug companies hurt consumers who don’t have access to affordable medications, and they hurt taxpayers who pay for prescription drugs for federal health care programs,” said Grassley. “The delays put the interests of drug companies above the interests of consumers.”

Jeffrey I. Weinberger (Munger, Tolles & Olson LLP) for respondent.

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