Mitchell IP LAW client allert – Hatch Waxman Development

You may recall that our monograph on Hatch Waxman Law discusses Pay to Delay settlements under the heading USING THE FIRST ANDA FILER’S EXCLUSIVITY
The Federal Trade Commission has often and usually unsuccessfully challenged such settlements as being anti-competitive.  The 11th and the 2d Circuit in particular have upheld such settlements as reasonable restraints of trade with some pro-competitive effects.  The Sixth Circuit found one such settlement unreasonable.  Generally speaking, the prior cases have placed a significant burden on those trying to prove that a “pay to delay” or “reverse payment” settlement violates the anti-trust laws.  Such settlements were permitted (1) so long as the market exclusion did not exceed the scope of the patent,  (2) the patent holder’s claim of infringement was not “objectively baseless,” and (3) the patent was not procured by fraud on the patent office.

As set forth below, the Third Circuit has tipped the burden of proof in the opposite direction.  The Third Circuit has ruled such settlements prima facie unreasonable restraints of trade, placing the burden of proof on the settling parties to establish the reasonableness of the settlement.  Further, they have by way of dicta (statements made, but not necessary to support their holding), made that burden of proof rather high.  They suggest only two bases for overcoming the prima facie case of unreasonable restraint:

  1. That there is in fact no reverse payment; and

  2. Attempt to account for the “probably rare” situations where a reverse payment increases competition.

As an example of the latter, they site the case of such a payment saving a generic drug company from bankruptcy.

Will the United States Supreme Court grant certiorari ( permission to Schering Plough’s to appeal to Supreme Court)?

Considering the gulf of the split between the circuits which the Third Circuit opinion creates, and the widespread commercial interest in lowering drug costs, we at Mitchell Intellectual Property Law think the grant of certiorari likely.  How will the Supreme Court decide the case?  Perhaps we should ask Justice Roberts.  We will keep you advised as this case develops.

THIRD CIRCUIT SAYS PAYMENTS BETWEEN GENERIC AND BRAND DRUG MAKERS ARE PRIMA FACIE UNREASONABLE RESTRAINTS OF TRADE — In re K-Dur Antitrust Litigation 10-2077 — The Third Circuit U.S. Court of Appeals issued its opinion on July16.  The opinion conflicts with several recent appellate opinions by other courts, which have argued that lawful reverse payment settlements actually reduce costs for consumers and the federal government, and avoid wasteful investment by innovator companies in litigation rather than innovation.  See, e.g., FTC v. Watson Pharmaceuticals, Inc., 2012 U.S. App. LEXIS 8377 (11th Cir. 2012); In re Ciprofloxacin Hydrochloride Antitrust Litig, 544 F.3d 1323 (Fed. Cir. 2008); In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006); and Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005).

Thank you.

James A. Mitchell
Office 616 965 2431
Cell 616 540 2677