On Dec. 7, the U.S. Supreme Court granted a writ of certiorari on the
question of whether a “pay-for-delay” settlement--in which a patent-owning brand
name drug manufacturer pays a generic maker to cease its patent validity
challenge in court--violates federal antitrust laws (Federal Trade Commission
v. Watson Pharmaceuticals Inc. , U.S., No. 12-416, review granted
Also known as a reverse-payment settlement, the generic company typically
agrees to stay out of the market until the patent expires or just before that,
and the brand drug maker retains exclusivity.
In this case, the Federal Trade Commission had challenged the agreement
between patent owner Solvay Pharmaceuticals Inc. and generic drug makers--Watson
Pharmaceuticals Inc., Par Pharmaceuticals Inc., and Paddock Laboratories
Inc.--to delay introduction of their generic versions of
testosterone-replacement drug AndroGel as part of a patent litigation
The U.S. Court of Appeals for the 11th Circuit rejected the FTC's arguments
April 25. Federal Trade Commission v. Watson Pharmaceuticals Inc., 677
F.3d 1298, 102 USPQ2d 1561 (11th Cir. 2012) (80 PTD, 4/26/12).
The question presented by the FTC's petition for writ of certiorari is:
Whether reverse-payment agreements are
per se lawful unless the underlying patent litigation was a sham or the patent
was obtained by fraud (as the court below held), or instead are presumptively
anticompetitive and unlawful (as the Third Circuit has held).
The reference to the Third Circuit is to its July 16 opinion in In re
K-Dur Antitrust Litigation, 686 F.3d 197, 103 USPQ2d 1497 (3d Cir. 2012)
(137 PTD, 7/18/12), which disagreed with the 11th Circuit's conclusion.
The case is likely to be heard in March. The high court's orders also noted
that Justice Samuel A. Alito took no part in the consideration of the
The settlements have been challenged in the courts as anti-competitive by the
FTC and by drug payers, such as employers, benefit funds, and drugstore chains.
The FTC has taken the position that pay-for-delay settlements are per se
illegal. In a 2010 staff
study, the commission concluded that reverse-payment settlements cost
consumers $3.5 billion annually.
However, since 2005, the U.S. Courts of Appeals for the Second, 11th, and
Federal Circuits rejected antitrust challenges either initiated or supported by
The decision by the Third Circuit bucked that trend and created the circuit
Merck & Co., which markets the patent-protected blood pressure treatment
K-Dur 20 (potassium chloride), entered into settlements with two generic makers,
Upsher-Smith Laboratories Inc. and ESI Lederle. The settlements were challenged
under antitrust grounds by Walgreen Co., Eckerd Corp., Kroger Co., Safeway Inc.,
Albertson's Inc., Hy-Vee Inc., and Maxi Drug Inc.
Reversing a district court dismissal of a class action lawsuit brought by
private party direct purchasers, the Third Circuit held that drug companies must
show that the reverse-payment patent settlement has pro-competitive effects to
avoid antitrust scrutiny.
The question presented by Merck in its cert petition is:
Whether the federal antitrust laws
permit a brandname manufacturer that holds the patent for a drug to enter into a
settlement of patent litigation with a prospective generic manufacturer, where
the settlement includes a payment from the brand manufacturer to the generic
manufacturer but does not exclude competition beyond the scope of the
Upsher-Smith also filed a petition for review of the same case. The high
court was scheduled to consider these two petitions in its Dec. 7 conference as
well, but did not indicate that it would grant cert on those petitions.
This is not the first time the 11th Circuit addressed the reverse-payment
settlement question and the court's decision in the Androgel case relied on its
precedents in Valley Drug Co. v. Geneva Pharmaceuticals Inc., 344 F.3d
1294, 68 USPQ2d 1658 (11th Cir. 2003), and Schering-Plough Corp. v. Federal
Trade Commission, 402 F.3d 1056, 92 USPQ2d 1545 (11th Cir. 2005) (48 PTD,
The FTC was no more successful in two other circuit courts. Reverse payment
settlements survived FTC antitrust challenges in the Second Circuit inIn re
Tamoxifen Citrate, 429 F.3d 370, 77 USPQ2d 1705 (2d Cir. 2005); and the
Federal Circuit in In re Ciprofloxacin Hydrochloride Antitrust
Litigation, 544 F.3d 1323, 88 USPQ2d 1801 (Fed. Cir. 2008).
Solvay is represented by Michelle Friedland of Munger Tolles & Olson, San
Francisco; Watson is represented by Clifford M. Sloan of Skadden Arps Slate
Meagher & Flom, Washington, D.C.; and Par and Paddock are represented by
Eric Grannon of White & Case, Washington, D.C. The FTC was represented at
the 11th Circuit by Bradley S. Albert, an attorney in the FTC's Bureau of
As to the K-Dur related petitions, Merck is represented by Kannon K.
Shanmugam of Williams & Connolly, Washington, D.C.; Upsher-Smith is
represented by Jay P. Lefkowitz of Kirkland & Ellis, Washington, D.C.; and
the challengers to the settlement, led by Louisiana Wholesale Drug Co., are
represented by Steven G. Bradbury of the Dechert law firm, Washington, D.C.
By Tony Dutra
Watson opinion below at http://pub.bna.com/ptcj/101272912Apr25.pdf
FTC's petition for review at http://pub.bna.com/ptcj/120416FTCpetition.pdf
K-Dur opinion below at http://pub.bna.com/ptcj/10207712Jul16.pdf
Merck's petition for review at http://pub.bna.com/ptcj/MerckvLouisiana2012.pdf
2010 FTC study at http://www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf