CRS Updates Report on Reverse Payment Litigation Settlements for Pharma Patents

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The Congressional Research Service Jan. 20 published a report analyzing the impact on competition and innovation when a reverse payment settlement is reached between a brand name pharmaceutical patent owner and a potentially infringing generic drugmaker.

The report, “Pharmaceutical Patent Litigation Settlements: Implications for Competition and Innovation,” updated a report published in 2008 on two points.

First, the bill addressing the topic and considered by the Senate Judiciary Committee, S. 369, was modified considerably before a committee vote to cut back on the presumption that reverse payments are per se illegal. Second, the report described the 2010 decision of the U.S. Court of Appeals for the Second Circuit in Arkansas Carpenters and questioned whether the result may call for U.S. Supreme Court review.

“The settlement of pharmaceutical patent litigation forms an important issue because such litigation is itself important to our public health system,” according to author John R. Thomas. “Our patient population relies upon brandname drug companies to develop new medicines, but it also relies upon generic firms to increase access to such medications once they have been developed.”

Arguable Circuit Split.

Thomas, a law professor at Georgetown University, provided an overview of how reverse payment practice developed based on the intricacies of the Hatch-Waxman Act, antitrust law related to patents and horizontal market agreements, and the differences in how four circuit courts have applied antitrust law to different sets of facts.

The settlements, alternatively referred to as pay-for-delay, reverse payment, or exclusionary payment deals, feature the branded company giving money to the generic company in return for the generic manufacturer's agreement to stay out of the market. The settlements arise out of litigation initiated by a brand drug manufacturer after the generic maker challenges the drug's underlying patent by submitting an abbreviated new drug application, or ANDA, to the Food and Drug Administration.

The Second, Eleventh, and Federal Circuits have held that such payments do not violate antitrust laws. That leaves only the Sixth Circuit with a contrary holding that pay-for-delay agreements are per se antitrust violations, in In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003).

The CRS report described the Second Circuit's update to its jurisprudence recently in Arkansas Carpenters Health and Welfare Fund v. Bayer AG, 604 F.3d 98 (2d Cir. 2010), rehearing en banc denied, No. 05-2851-cv (L) (2d Cir. Sept. 7, 2010) .

The case involved two reverse payment settlements relating to the antibiotic Cipro, for which Bayer AG owned the patent. “Each called for the payment of substantial sums of money in exchange for agreements by the generic firms to concede [Bayer] patent's validity and to wait to market a generic version of CIPRO until the patent expired,” Thomas noted.

The report noted the Second Circuit's holding that “the right to enter into reverse exclusionary payment agreements falls within the terms of the exclusionary grant conferred by the branded manufacturer's patent,” affirming that circuit's prior jurisprudence in In re Tamoxifen Citrate, 429 F.3d 370 (2d Cir. 2005). “Under this view,” the report said, “a cause of action for an antitrust violation arises only when the patent has been procured by fraud, the suit for its enforcement is objectively baseless, or the settlement agreement exceeds the scope of the relevant patent.”

But Thomas said the decision in Arkansas Carpenters offered several reasons why its precedent might deserve reconsideration:  

First, the U.S. Department of Justice called for the rejection of the Tamoxifen approach. Second, evidence suggested that the number of reverse payment settlements had increased since the Tamoxifen decision issued. Third, Senator [Orrin] Hatch [(R-Utah)], a co-author of the Hatch-Waxman Act, had criticized reverse payment settlements. Finally, Tamoxifen had not recognized that the 180-day generic exclusivity applies only to the first paragraph IV ANDA applicant, and is not awarded to the first successful challenger. 



Compromise Bill.

The report also looked at the development of a compromise bill approved by the Senate Judiciary Committee in the previous Congress, S. 369, reflecting a change from prior legislative efforts to make reverse payments per se illegal.

The “Preserve Access to Affordable Generics Act” would have allowed the Federal Trade Commission to initiate a proceeding against the parties to any reverse payment agreement, Thomas said. “The legislation would have created a presumption that such an agreement has anticompetitive effects and be unlawful if the ANDA filer receives anything of value and the ANDA filer agrees not to research, develop, manufacture, market, or sell the ANDA product for any period of time.”

In considering whether the settling parties overcame the presumption, Thomas said, the legislation would have required a court to consider:

• the remaining term of the relevant patent, compared with the agreed upon entry date of the ANDA product;

• the value to consumers of the competition from the ANDA;

• the form and amount of consideration provided to the ANDA filer;

• the revenue the ANDA filer would have received by winning the patent litigation;

• the reduction in the branded company's revenues if it had lost the patent litigation;

• the time period between the date of the agreement conveying value to the ANDA filer and date of the settlement of the patent case; and

• any other relevant factor.

The CRS report was written before a new bill, S. 27, was introduced in the 112th Congress by Sen. Herb Kohl (D-Wis.), with few changes to S. 369.

Options for Congress.

The report concluded with two options--other than along the lines of S. 369--available to Congress to reconcile the differences in the circuit court decisions:

• Do nothing and wait for a case to make its way to the Supreme Court or for further circuit court decisions to “lead to an informed consensus on the antitrust consequences of reverse payment settlements.”

• Regulate reverse payment settlements as a per se antitrust violation, per the In re Cardizem CD Antitrust Litigation holding and the earlier Senate bills prior to the S. 369 compromise.

Thomas closed the report by noting that Hatch-Waxman “provides for patent litigation … as a primary vehicle” for mediation when the competing goals of rewarding new medicine development and increasing consumer access conflict. But he added, “When concluded in a manner that comports with antitrust principles, … settlements may further the public policy goals of encouraging the labors that lead to medical innovation, but also distributing the fruits of those labors to consumers.”

By Tony Dutra

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