Agreement to Defer Market Entry of Generic Drug in Exchange for Payment in Patent-Dispute Settlement Violates Antitrust Laws

In a case that raised significant policy issues at the intersection of patent and antitrust law, the U.S. Federal Trade Commission (FTC) issued a final order and opinion that agreements between Schering-Plough Corp. (Schering) and two potential generic competitors to settle patent disputes violated antitrust laws by delaying competition. In re Schering-Plough Corp., FTC, Dkt. No. 9297, Dec. 18, 2003.

According to the FTC, under agreements made in the 1990s to settle patent infringement litigation, Schering was paying Upsher-Smith Laboratories (Upsher) and American Home Products (AHP, now Wyeth) to delay the launch of generic versions of K-Dur 20Æ, a prescription potassium chloride supplement used to treat patients who have low blood potassium levels. Under the agreements, Upsher agreed not to market a generic version of K-Dur 20 until September 2001 and licensed six products to Schering for a total of $60 million, which the FTC staff charged was unrelated to the actual value of the licenses. In a similar agreement, AHP agreed not to market its generic version of K-Dur 20 until January 2004 and licensed two AHP products to Schering for $30 million, a payment also alleged to be unrelated to license value.

The commission focused its factual inquiry on whether Schering had paid $60 million to Upsher for licenses or for delay. After extensive review of the facts, the commission observed that, without "proof of other offsetting considerations, it is logical to conclude that the quid pro quo for the payment was an agreement by the generic to defer market entry beyond the date that represents an otherwise reasonable litigation compromise." While acknowledging that the challenged agreements were ancillary to the pro-competitive objective of a patent dispute settlement, the commission nevertheless concluded that "the magnitude of the payment was not based on Schering's evaluation of the Upsher licenses." Based on the facts of the case the commission held that Schering did in fact pay...

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