Sham Drug Patent Litigation, Not Reverse Payments, Could Have Violated Antitrust Law

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The manufacturer of a branded drug used to treat male hypogonadisma and three generic drug manufacturers could have conspired to restrain trade in violation of federal antitrust law by entering into settlements of sham patent infringement litigation under which the generic drug makers kept their versions off the market in exchange for a portion of the branded manufacturer's monopoly profits, the federal district court in Atlanta has ruled.

However, several other antitrust claims brought by the FTC and putative classes of direct and indirect purchasers were not similarly viable.
Specifically, the court rejected claims that the reverse payment aspect of the settlements rendered them illegal and the drug makes had violated antitrust law by agreeing not to compete.

Also rejected were (1) claims by all of the plaintiffs that the drug companies had attempted to monopolize the market for the generic version through an overall scheme that included improper patent listing in the Food and Drug Administration's Orange Book, the filing of sham litigation, and the reverse payment settlements and (2) claims by indirect purchasers that the defendants' actions violated the common law and antitrust laws of 40 states.

Therefore, the defendants' motions to dismiss were granted as to the claims of the FTC and indirect purchasers and granted in part and denied in part as to the claims of the direct purchasers.

Noerr-Pennington Immunity

Three of the defendants asserted immunity under the Noerr-Pennington doctrine, which provides that no antitrust liability may arise from petitioning the government for an anticompetitive outcome. Immune petitioning activity may include legislative lobbying and administrative and judicial proceedings. However, there is a well-established exception to the Noerr-Pennington doctrine for sham litigation.

In this case, the complaining putative class of direct purchasers sufficiently alleged that the branded manufacturer's infringement actions were objectively baseless on the grounds that the generic versions clearly did not infringe the original patent covering the drug and the patent clearly did not meet the written description requirement as to the drug's composition ranges, the court reasoned.

The drug manufacturers did not unreasonably restrain trade simply by entering into settlements under which the generic drug makers were paid to keep their generic versions off the market, the court found. Because the complaining drug purchasers and FTC did not allege that the settlements exceeded the scope of the manufacturer's patent on the drug, it did not matter that the companies settled their patent disputes with reverse payments.

By their nature, patents created an environment of exclusion and crippled competition. Thus, the anticompetitive effect was already present. It was irrelevant whether the patent might ultimately be found invalid. Moreover, the conduct was not illegal per se. Per se illegality analysis did not apply to reverse payments, the court noted.

The February 22 decision is In re: Androgel Antitrust Litigation (No. II), 2010-1 Trade Cases ¶76,914.