April 19, 2014

Supreme Court to Decide "Pay for Delay" Antitrust Case Involving Generic Drugs

What is the connection between a turducken and generic prescription testosterone replacement drugs?  Antitrust law, of course!  At least according to Judge Carnes' opinion in  FTC v. Watson Pharmaceuticals, 677 F.3d 1298 (11th Cir. 2012), an Eleventh Circuit case affirming the dismissal of the FTC's challenge to a "reverse payment" patent settlement agreement.

On December 7, 2012, the Supreme Court granted certiorari in Watson, making it the first "pay for delay" or "reverse payment" settlement case that the Supreme Court has agreed to hear.  The Courts of Appeal are currently divided on the issue.  The Third Circuit has accepted the FTC's argument that "pay for delay" patent settlement agreements are presumptively anticompetive.  See In re K-Dur Antitrust Litigation, 686 F.3d 197 (3d Cir. 2012).  The Eleventh, Second and Federal Circuits, however, have held that such agreements are lawful so long as the exclusion in the settlement agreement is not beyond the potential "scope of the patent."  See Watson, supra; In re Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d Cir. 2006); In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F.3d 1323 (Fed. Cir. 2008).

These cases arise when a pharmaceutical patent holder sues a generic manufacturer, who is about to enter the market, for patent infringement.  Instead of litigating the validity of the patent to conclusion, however, the parties enter into a settlement agreement in which the patent holder pays the generic manufacturer not to enter the market until sometime shortly before the expiration of the patent.  The FTC estimates that reverse payment settlements cost consumers $3.5 billion per year in the form of higher drug prices.  The FTC claims that such "reverse payments" or "pay for delay" settlement agreements are presumptively anticompetitive, especially when, as alleged in Watson, the patent holder was "unlikely to prevail" in the patent litigation.  Absent the protection of the patent, the "pay for delay" settlement agreement would be a naked restraint on trade.  Thus, the FTC has urged courts to look into the merits of the underlying patent litigation to determine how likely it was that the patent would have been upheld.

In Watson, the Eleventh Circuit rejected the FTC's argument, characterizing it as the "predict-the-likely-outcome-that-never-came approach."  Instead, the Eleventh Circuit reaffirmed its prior holding "that, absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent."  In other words, the Court would not conduct an after-the-fact examination of the likely success of the underlying patent litigation so long as the litigation was not objectively unreasonable (i.e. a sham).

In rejecting the FTC's argument, Judge Carnes coined a delicious new phrase:

... it is worth emphasizing that what the FTC proposes is that we attempt to decide how some other court in some other case at some other time was likely to have resolved some other claim if it had been pursued to judgment. If we did that we would be deciding a patent case within an antitrust case about the settlement of the patent case, a turducken task.

(What are the chances that Justice Scalia will come up with another roasted meat metaphor in the Supreme Court's decision?)

Judge Carnes' opinion contains a very good summary and description of the incentives at issue in these "pay for delay" settlements, and I highly recommend it to anyone interested in this issue. 

The Supreme Court's decision will have a huge impact on the pharmaceutical industry, as noted in this Bloomberg article.  More than 100 reverse payment settlement agreements have been reached since 2005, involving some of the most popular (and profitable) blockbuster drugs.  As noted by the President of the Generic Pharmaceutical Association: "This case could determine how an entire industry does business because it would dramatically affect the economics of each decision to introduce a generic drug." 

We will be following the developments in this case and will be posting more information about this issue in the near future.

Copyright © 2014 Womble Carlyle Sandridge & Rice, PLLC. All Rights Reserved.

About the Author

Jason Hicks, Antitrust Attorney, Womble Carlyle Law Firm

Jason Hicks is a member of the Firm's Antitrust, Distribution and Franchise Law Practice Group. Jason has experience litigating cases and counseling clients in a wide variety of matters involving federal and state antitrust laws, franchise and dealer protection statutes, unfair and deceptive trade practices, advertising laws and regulations, industry-specific trade regulations, contract disputes, business torts, and constitutional law. Jason's practice focuses on helping clients efficiently and effectively move their products through various levels of distribution by developing...


Boost: AJAX core statistics

Legal Disclaimer

You are responsible for reading, understanding and agreeing to the National Law Review's (NLR’s) and the National Law Forum LLC's  Terms of Use and Privacy Policy before using the National Law Review website. The National Law Review is a free to use, no-log in database of legal and business articles. The content and links on are intended for general information purposes only. Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. No attorney-client or confidential relationship is formed by the transmission of information between you and the National Law Review website or any of the law firms, attorneys or other professionals or organizations who include content on the National Law Review website. If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor.  

Some states have laws and ethical rules regarding solicitation and advertisement practices by attorneys and/or other professionals. The National Law Review is not a law firm nor is  intended to be  a referral service for attorneys and/or other professionals. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional.  NLR does not answer legal questions nor will we refer you to an attorney or other professional if you request such information from us. 

Under certain state laws the following statements may be required on this website and we have included them in order to be in full compliance with these rules. The choice of a lawyer or other professional is an important decision and should not be based solely upon advertisements. Attorney Advertising Notice: Prior results do not guarantee a similar outcome. Statement in compliance with Texas Rules of Professional Conduct. Unless otherwise noted, attorneys are not certified by the Texas Board of Legal Specialization, nor can NLR attest to the accuracy of any notation of Legal Specialization or other Professional Credentials.

The National Law Review - National Law Forum LLC 4700 Gilbert Ave. Suite 47 #230 Western Springs, IL 60558  Telephone  (708) 357-3317 If you would ike to contact us via email please click here.