Reverse-Payment Settlements Presumptively Anticompetitive, FTC Tells High Court

Reverse-Payment Settlements Presumptively Anticompetitive, FTC Tells High Court

WASHINGTON, D.C. - (Mealey's) The Federal Trade Commission told the U.S. Supreme Court in oral arguments March 25 that the court should treat reverse-payment settlements of patent litigation between the holder of a drug patent and potential generic manufacturers of the drug as presumptively invalid (Federal Trade Commission v. Actavis, Inc., et al., No. 12-416, U.S. Sup.).

(Oral argument transcript available. Document #81-130328-039T.)

Deputy Solicitor General Malcolm L. Stewart of the U.S. Department of Justice, representing the FTC, told the Supreme Court that the 11th Circuit U.S. Court of Appeals erred in ruling April 25 that "'absent sham (patent) litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent,' i.e., so long as the patentee does not obtain more protection from competition than would result from a successful infringement suit."

"Reverse payments to settle Hatch-Waxman [Act] suits are objectionable for the same reasons that payments not to compete are generally objectionable. They subvert the competitive process by giving generic manufacturers an incentive to accept a share of their rival's monopoly profits as a substitute for actual competition," Stewart said.

In response to Justice Ruth Bader Ginsburg's inquiry as to whether the government's position has changed, Stewart explained that the FTC's position has been consistent but that the DOJ, in 2009, argued for the first time that reverse-payment settlements "should be treated as presumptively unlawful" and that the defendants should be accorded an opportunity to rebut the presumption that the payment was in consideration for delay.

Justice Anthony M. Kennedy expressed concern that "the test is the same for a very weak patent as a very strong patent." Stewart responded that agreements in which "the parties simply agree to a compromise date of generic entry" would be regarded as legitimate because, in those cases, "the parties would certainly take into account their own assessment of what would likely happen at the end of the [patent] suit. And so if the parties believe that the brand name was likely to prevail, then if the brand name agreed to early generic entry at all, it would presumably be for a fairly small amount of time.Conversely, if the parties collectively believe that the . . . brand name had a weak case and the generic was likely to prevail, then they would negotiate for an earlier date."

Justices Stephen G. Breyer and Sonia Sotomayor noted that per se antitrust violations are rare and questioned why the rule of reason should not apply to reverse-payment settlements.

Justice Sotomayor stated that a reverse payment "suggests . . . that they're sharing profits" and that the Second Circuit U.S. Court of Appeals recognized that, under the scope of the patent test, "the less sound the patent, the more you're going to hurt consumers, because those are the cases where the payoff, the sharing of profits is the greatest inducement for the patentholder."

Jeffrey I. Weinberger of Munger, Tolles& Olson in Los Angeles argued for drug companiesActavis Inc. (formerly known as Watson Pharmaceuticals Inc.), Solvay Pharmaceuticals Inc., Par Pharmaceutical Cos. Inc. and Paddock Holdings Inc.

Justice Elena Kagan and Weinberger discussed the effect of the 180-day exclusivity period for the first filer on brand name companies' incentive to pay the profits of a generic manufacturer. Weinberger contended that the market "opens up" after the first six months.

Justice Ginsburg commented that the generic manufacturers in reverse-payment settlements "have been paid much more than they would get if they won the patent infringement suit. If they won the patent infringement suit then they can sell their generic in competition with the brand, but under this agreement they get more than they would get by winning the lawsuit." Similarly, Justice Kennedy commented that "[w]hat a brand company can lose is much greater than what the generic can make."

Justice Sotomayor said that Hatch-Waxman has created an "economic reality" that is different than in other situations and may require a different rule.

In rebuttal, Stewart said that a "fundamental principle of antitrust law [is] that particular conduct can be legal or illegal, depending on the deliberative process that led up to it" and that "the fact that particular anticompetitive conduct doesn't always work doesn't make it lawful."

Justice Samuel A. Alito Jr. did not take part in the case.

Patent Infringement Lawsuits

The agreements at issue involve payments made by Solvay to generic drugmakers Watson, Paddock and Par to settle Solvay's patent infringement lawsuit in exchange for the generic manufacturers' agreement not to market generic versions of AndroGel, a topical gel that treats the symptoms of low testosterone, in the United States prior to 2015.

The FTC sued Solvay, Watson, Par and Paddock, alleging that Solvay was not likely to prevail in the infringement actions that it brought against the generic manufacturers and then settled and, therefore, that the reverse-payment settlements unlawfully protected or preserved a monopoly that likely was invalid in restraint of trade in violation of Federal Trade Commission Act Section 5(a).

The U.S. District Court for the Northern District of Georgia dismissed the FTC's complaint under Federal Rule of Civil Procedure 12(b)(6), finding that the FTC did "not allege that the settlements exceed the scope of the . . . patent."

The 11th Circuit affirmed, holding that reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud. The 11th Circuit denied the FTC's petition for rehearing en banc.

The Third Circuit ruled in In re K-Dur Antitrust Litigation (686 F.3d 197 [2012], petitions for certiorari pending [No. 12-245 filed Aug. 24, 2012, and No. 12-265 filed Aug. 29, 2012]) that reverse-payment agreements are presumptively anti-competitive.


Amicus curiae briefs in support of the FTC were filed by Knowledge Ecology International; Public Patent Foundation; Louisiana Wholesale Drug Co. Inc., CVS Pharmacy Inc., Rite Aid Corp., Walgreen Co., Eckerd Corp., The Kroger Co., Safeway Inc., Albertson's Inc., Hy-Vee Inc. and Maxi Drug Inc.; America's Health Insurance Plans; States of New York, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Washington and Wyoming, the District of Columbia and the Commonwealth of Puerto Rico; 118 law, economic and business professors and the American Antitrust Institute; Apotex Inc.; AARP, American Medical Association, National Legislative Association for Prescription Drug Prices and U.S. Public Interest Research Groups; Rep. Henry A. Waxman; and National Association of Chain Drug Stores (NACDS).

Amicus briefs in support of the drug companies were filed by National Association of Manufacturers; Generic Manufacturers Upsher-Smith Laboratories Inc., Teva Pharmaceuticals USA Inc., Ranbaxy Pharmaceuticals Inc., Mylan Pharmaceuticals Inc. and Impax Laboratories Inc.; Enavail; Generic Pharmaceutical Association; Bayer AG and Bayer Corp.; Shire PLC; New York Intellectual Property Law Association; Merck & Co. Inc.; Pharmaceutical Research and Manufacturers of America; Antitrust Economists; Law Professors Gregory Dolin, Kent Bernard, Christopher Holman, Adam Mossoff, Emily Michiko Morris, Mark F. Schultz, Geoffrey A. Manne and Max Oppenheimer; American Intellectual Property Law Association

Mediation and Negotiation Professionals; David W. Opderbeck and Erik Lillquist; Health and Economics Professors; Washington Legal Foundation; and Intellectual Property Owners Association.

Also representing Actavisare Clifford M. Sloan, Steven C. Sunshine and Julia K. York of Skadden, Arps, Slate, Meagher &Flom in Washington and David A. Buchen of Actavis in Parsippany, N.J. Solvay is also represented by Stuart N. Senator and Adam R. Lawton of MungerTolles in Los Angeles and Rohit K. Singla, Michelle T. Friedland and Michael J. Mongan of MungerTolles in San Francisco. Par and Paddock is also represented by Eric Grannon, J. Mark Gidley, Ryan M. Christian and David R. Courchaine of White & Case in Washington.

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