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Supreme Court Will Review Whether Reverse Payment Settlements Are Antitrust Violations

Monday, December 10, 2012

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 12/7/12).

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 settlement.

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 petition.

Circuit Split on Antitrust Violation.

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 FTC.

The decision by the Third Circuit bucked that trend and created the circuit split.

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 patent.  

 

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.

Prior Cases Against FTC.

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, 3/14/05).

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 Competition.

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

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