2013 Should Bring Clarity To Analysis Of Settlements Of Pharmaceutical Patent Litigation

The Federal Trade Commission (FTC) recently filed a brief with the U.S. Supreme Court in a case that promises to bring some clarity to the analysis of settlements of pharmaceutical patent litigation. Under the Hatch-Waxman Act, a generic drug manufacturer can file an application with the Food and Drug Administration (FDA) stating that a pioneer manufacturer's patent is invalid or that its generic drug does not infringe the patent. By statute, such an application is a technical act of patent infringement, permitting the pioneer manufacturer to file patent litigation. Some of these patent infringement suits are resolved by settlements that include a payment by the pioneer manufacturer to the generic manufacturer, which agrees to refrain from producing its generic drug for a specified period. The FTC refers to these settlement agreements as "reverse payment agreements" or "pay-to-delay" agreements.1

The legality of these so-called reverse payment agreements under the antitrust laws has been hotly debated and litigated. The courts have divided into two camps. Most recent federal courts of appeals decisions had ruled that these agreements are presumptively lawful as long as competition is only constrained within the scope of the patent and the patent was not obtained through fraud or the enforcement suit was not objectively baseless. See, e.g., FTC v. Watson Pharms., Inc., 677 F.3d 1298 (11th Cir. 2012); In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323 (Fed. Cir. 2008); In re Tamoxifen Citrate Antitrust Litig., 429 F.3d 370 (2d Cir. 2005). For example, in FTC v. Watson Pharmaceuticals, the generic manufacturer agreed to delay entry until 2015 as part of a settlement of patent litigation. The FTC claimed the generic manufacturers agreed to delay entry in return for payments for services under marketing agreements, which the FTC alleged had little actual value. The Court of Appeals for the Eleventh Circuit affirmed the dismissal of the lawsuit because the agreement allowed generic entry five years before the expiration of the patent in question and was therefore within the "scope of the patent."

In July 2012, however, the Court of Appeals for the Third Circuit issued an opinion that applied a much different standard, holding that such agreements are presumptively unlawful and that the burden is on the parties to prove that any payments were for something other than a delay in market entry. In re K-Dur Antitrust Litig., 686 F.3d...