U.S. Supreme Court To Weigh In On Reverse Payment Deals

On March 25, 2013, the U.S. Supreme Court heard oral argument in FTC v. Actavis, Inc.,1 which is on appeal from the U.S. Court of Appeals for the Eleventh Circuit. This case addresses a type of patent litigation settlement most common in the pharmaceutical industry sometimes referred to as a "reverse payment" or "pay for delay" agreement. As the Eleventh Circuit explained, in a reverse payment settlement, the patent holder pays the allegedly infringing generic drug company to delay entering the market until a specified date, which protects the patent monopoly against a judgment that the patent is invalid or would not be infringed by the generic company's product. FTC v. Watson Pharms., Inc., 677 F.3d 1298, 1301 (11th Cir. 2012).

To put this case in context, it is helpful to have an understanding of the process by which brand name pharmaceutical manufacturers and generic companies introduce drugs to market. One way a brand name manufacturer initiates approval for a new drug is to submit a New Drug Application ("NDA") to the Food and Drug Administration ("FDA") with detailed information about the drug, including data that demonstrates the safety and efficacy of the drug. 21 U.S.C. § 355(b)(1). The NDA applicant must also provide the FDA with the patent numbers of any patent that a generic manufacturer would infringe by making or selling the NDA applicant's drug. 21 U.S.C. § 355(b)(1); 21 C.F.R. § 314.53(b). If the FDA approves the NDA, the drug and patent information is published in a book commonly known as the "Orange Book."

To obtain FDA approval of a generic drug, a generic manufacturer is allowed to follow a much less rigorous procedure outlined by the Hatch-Waxman Act. The generic applicant files an Abbreviated New Drug Application ("ANDA"), which allows that applicant to rely on the safety and efficacy studies supplied by the brand name manufacturer if the generic manufacturer shows that its generic product contains the same active ingredient as, and is bioequivalent to, the brand name drug. See 21 U.S.C. § 355(j).

If a generic applicant is filing an ANDA for a drug listed in the Orange Book, the ANDA applicant must make one of four certifications with respect to any patents associated with the drug. In particular, the ANDA applicant must certify that: (I) no patent information for the brand name drug has been filed; (II) the patent has expired; (III) the patent will expire on a specified date; or (IV) the "patent is invalid or will not be infringed by the manufacture, use, or sale of the new drug for which the application is submitted." 21 U.S.C. § 355(j)(2)(A)(vii). If the ANDA applicant certifies under paragraph IV, then it must send notice to the patent holder. 21 U.S.C. § 355(j) (2)(B). The paragraph IV certification is deemed a constructive act of infringement, and the patent holder then has 45 days to file an infringement lawsuit against the ANDA applicant. 35 U.S.C. § 271(e)(2)(A); 21 U.S.C. § 355(c)(3)(C). If the patent holder does not bring suit, the FDA may approve the generic manufacturer's ANDA. 21 U.S.C. § 355(j) (5)(B)(iii). However, when a lawsuit is filed within 45 days, the FDA generally may not grant final approval of the ANDA for 30 months after the lawsuit is filed or until the ANDA filer prevails in litigation, whichever occurs first. 21 U.S.C. § 355(j)(5)(B)(iii). If patent validity and infringement remain unresolved after the 30 month stay, the FDA may proceed to approve the ANDA. 21 U.S.C. § 355(j)(5) (B)(iii)(II); 35 U.S.C. § 271(e)(4)(A). In this situation, the generic may launch the generic drug, but risks being liable for damages if the patent is ultimately held to be valid and infringed.

The Hatch-Waxman Act provides an incentive for generic drug manufacturers to file ANDA applications making a paragraph IV certification. More specifically, the first ANDA applicant making a paragraph IV certification that receives FDA approval is granted a 180-day period of exclusivity during which the FDA postpones the approval of any other ANDA applications for a generic version of the same Orange Book listed drug.2 21 U.S.C. § 355(j)(5)(B)(iv).

In the Actavis case, Besins Healthcare, S.A., developed AndroGel, a topical gel that treats the symptoms of low testosterone in men. Besins granted Solvay Pharmaceuticals, Inc. a license to sell AndroGel in the United States and agreed to provide a commercial supply of the drug if the FDA approved it. Solvay filed an NDA for AndroGel in April 1999, and the FDA approved the NDA in February 2000. After the United States Patent and Trademark Office awarded Solvay and Besins with U.S. Patent No. 6,503,894 ("the '894 patent") on January 7, 2003, Solvay asked the FDA to include the '894 patent in the Orange Book for the AndroGel listing. The '894 patent did not expire until August 2020.3

Two generic manufacturers , Watson Pharmaceuticals, Inc. and Paddock Laboratories, Inc., filed ANDA's with the FDA in May 2003. As the first party to file an ANDA, Watson was eligible for a 180-day period of exclusivity. Both generic manufacturers made paragraph IV certifications, asserting that their generic AndroGel did not infringe the '894 patent and/or that the '894 patent was invalid. Solvay filed a patent infringement lawsuit in federal district court within the 45-day window, triggering the 30-month stay of the FDA's approval of Watson and Paddock's ANDA's. Paddock partnered with Par Pharmaceutical Companies, Inc., which agreed to share Paddock's litigation costs in exchange for part of the potential profits from Paddock's generic AndroGel product if that product received final FDA approval.

When the 30-month stay expired in January...

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