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.

Legislation to Ban “Pay-to-Delay” Drug Agreements Introduced in Congress

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

A bill to prohibit brand name drug manufacturers from compensating generic drug makers to delay the entry of a generic drug into the market was introduced in the House of Representatives by Rep. Bobby Rush (D-Illinois) on March 25.

The legislation specifically addresses, and seeks to ban, provisions in settlements of patent infringement litigation between pharmaceutical companies that involve "reverse payments"—payouts by the brand name drug maker to the generic maker in return for an agreement by the generic to keep its drug off the market for some specified amount of time.

Dubbed the "Protecting Consumer Access to Generic Drugs Act of 2009," the measure (H.R. 1706) would have an effect similar to a proposal introduced in the Senate by Herb Kohl (D-Wisconsin) on February 3. That bill (S. 369), the "Preserve Access to Affordable Generics Act," remains under consideration by the Senate Judiciary Committee.

While aiming to accomplish similar goals, the bills would address the matter through different statutes. The House bill would declare a “pay-to-delay” agreement an unfair and deceptive act prohibited by the FTC Act, and would grant the FTC the authority to enforce the legislation. The Senate bill would instead amend the Clayton Act, calling the conduct "Unlawful Interference with Generic Marketing."

Another difference between the bills concerns their definitions of what constitutes an applicable "agreement." The House bill refers solely to those constituting an agreement under the FTC Act, while the Senate bill would ban those that are considered agreements by the Sherman Act as well. Both would allow the FTC to create exceptions through its rulemaking process.

Text of H. R. 1706 appears here. Text of S. 369 appears here. Further information about both bills is available at the Library of Congress “Thomas” website.