Justice Department Calls “Reverse Payments” in Patent Settlements Presumptively Illegal

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

A patent litigation settlement involving a “reverse payment” to the alleged drug patent infringer in exchange for its agreement to withdraw its challenge to the patent and delay bringing its generic drug to market is presumptively unlawful under the antitrust law, according to a July 6 brief filed by the Department of Justice with the U.S. Court of Appeals in New York City.

The brief was filed in an action challenging a settlement agreement between drug maker Bayer AG and the generic defendant Barr Laboratories, Inc. regarding the antibiotic drug ciprofloxacin. The case is Arkansas Carpenters Health and Welfare Fund v. Bayer, AG, 05-2851-cv(L).

Alignment of Antitrust Division, FTC Positions

The Justice Department’s brief reflects a move toward an alignment of the Antitrust Division and FTC positions on reverse payment settlements.

In its brief, the Justice Department cites an FTC opinion, In the Matter of Schering-Plough Corp. (CCH Trade Regulation Reporter ¶15,525), which states that “the possible existence of a so-called ‘reverse payment’ raises a red flag that . . . mandates a further inquiry.”

That opinion was later vacated by the U.S. Court of Appeals in Atlanta in Schering-Plough Corp. v. FTC (2005-1 Trade Cases ¶74,716), which concluded that the FTC failed to establish that settlements of patent infringement litigation restrained trade.

When the FTC asked for U.S. Supreme Court review of the federal appellate court’s decision in 2006, the Solicitor General recommended that the Court deny the petition for review, saying that the case did not present “an appropriate opportunity . . . to determine the proper standards for distinguishing legitimate patent settlements, which further the important goals of encouraging innovation and minimizing unnecessary litigation, from illegitimate settlements that impermissibly restrain trade in violation of the antitrust laws.”

Text of the Justice Department brief appears here on the Department of Justice Antitrust Division website.