Private Challenges To Reverse Payment Settlement Allowed To Go Forward

In stark contrast to recent decisions by other circuits, the Third Circuit holds that patent law does not insulate patent settlements from antitrust scrutiny.

On July 16, the U.S. Court of Appeals for the Third Circuit reversed a lower court's dismissal of a private antitrust challenge to a patent settlement agreement between Schering-Plough Corporation (Schering) and two generic competitors. In re K-Dur Antitrust Litig., Nos. 10-2077, 10-2078, 10-2079, 10-4571 (3d Cir. July 16, 2012), available here. The decision, while premised on a private suit, comes on the heelsof a series of defeats for the Federal Trade Commission (FTC) involving challenges to so-called "reverse payment settlements" or "pay-for-delay settlements" in the pharmaceutical industry. The Third Circuit rejected the notion that the settlement should be reviewed within the "scope of the patent" and instead upheld the view championed by the FTC that "any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market [i]s prima facie evidence of an unreasonable restraint of trade." K-Dur, slip op. at 33.

Background

When a manufacturer wishes to commercialize a generic version of a product that is patent protected, it must either challenge the validity of the patent or state that its product does not infringe on the patent when making its Abbreviated New Drug Application (ANDA). Under the Drug Price Competition and Patent Term Restoration Act of 1984, 35 U.S.C. § 271(e)(1), commonly known as the Hatch-Waxman Act, the innovator patent holder is notified that an ANDA has been filed and has 45 days to file a patent infringement suit, which delays the ANDA's approval for 30 months or until the first generic competitor wins its suit. Patent litigation between innovator pharmaceutical manufacturers and potential generic competitors is frequently resolved by settlements in which generic competitors receive licenses to sell their products before the applicable patents expire, but not immediately. The settlements allow the parties to end costly litigation and ensure entry of the generic drug at a certain date, which would not happen prior to the patent expiry if the innovator won the case.

The FTC is notified of these settlements within 10 business days and reviews the settlements to determine if they violate antitrust laws. The FTC advocates that settlements where the generic competitor receives a cash payment or something else of value (e.g., a...