Antitrust Alert: New FTC Pharma Patent Litigation Report Finds Increase In 'Reverse Payment' Settlements Based On Expanded Definition Of 'Payments'

With the Supreme Court set to address the validity of "reverse payment" settlements of pharmaceutical patent litigation, the FTC released a summary of its new report, announcing that in 2012 drug companies entered "a record number" of such settlements. However, the underlying data and analysis merely highlight that the devil is in the definitions:over time the FTC has expanded its definition of the term "payments."Unless the Supreme Court moots this issue in FTC v. Watson Pharmaceuticals, 677 F.3d 1298 (11th Cir. 2012), cert. granted, 568 U.S. ___(U.S. Dec. 7, 2012) (No. 12-416), this far-reaching definition of "payment" may become the next critical front in the FTC's campaign against "reverse payment" settlements.

The Dispute Over Reverse Payments

In a "reverse payment" settlement (in the FTC's vernacular, a "pay-for-delay" settlement), the branded-drug manufacturer settles a challenge to its patent by providing compensation to the generic challenger. In exchange, the generic manufacturer typically agrees to drop its patent challenge and enter the market as a licensee at some later time before the patent expires. Since roughly 2000, the FTC has engaged in a largely unsuccessful effort to persuade courts that such settlements should be presumed unlawful, whether or not the generic drug infringed the subject patent. After failing in the Second, Eleventh, and Federal Circuits, the FTC finally persuaded the Third Circuit in 2012 to accept its view, which created the circuit split soon to be resolved by the Supreme Court in Watson.

The FTC's 2012 "Overview"

The new FTC report, entitled "Agreements Filed With the Federal Trade Commission Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003: Overview of Agreements Filed in Fiscal Year 2012," is the latest in a series of annual reports, which commenced in 2004 after Congress required all pharmaceutical patent settlements with generic challengers to be filed with the FTC. For the last three fiscal years the FTC has provided only brief "overviews" of the actual report (the last full version of such an annual report released by the FTC was for FY2009). The 2012 overview emphasizes two points. First, the report states that, in 2012, branded and generic drug companies entered 40 settlements "that potentially involve pay-for-delay payments," which is the highest annual figure since the FTC began collecting such data in 2003. According to the report, these 40 settlements...