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July 28, 2014

Update: Watson Pharmaceuticals Responds to FTC's Petition for Supreme Court Review of "Pay for Delay" Case; 31 States File Amici Curiae Brief

In our July 23 post, we covered the Eleventh Circuit’s denial of a petition for a rehearing filed by the Federal Trade Commission ("FTC"), in which the Eleventh Circuit let stand its earlier rejection of the FTC's challenge that a “pay for delay” agreement (also called a “reverse payment” agreement)[1] violated antitrust laws.

In our October 8 post, we provided an update discussing the FTC's October 4 filing of a petition for writ of certiorari with the Supreme Court of the United States, seeking review of the Eleventh Circuit's decision.  

The litigant who prevailed in the district and appellate levels, Watson Pharmaceuticals, Inc. ("Watson") has now responded to the FTC's October 4 petition.  In a brief filed on November 13, 2012, Watson agreed that the Supreme Court should review the case, but unlike the FTC, urged the Supreme Court to affirm the Eleventh Circuit's decision.  Thirty-one states have also weighed in, jointly filing an amici curiae brief on November 5, 2012 in support of the FTC’s position.

Watson’s brief begins with a phrasing of the “Question Presented” that foreshadows the parties’ divergent approaches in seeking Supreme Court review:

FTC’s “Question Presented”
Watson’s “Question Presented”
“Whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the court below held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit has held).” “Whether the federal antitrust laws permit the settlement of patent litigation between a patent-holding
brand-name pharmaceutical manufacturer and a generic manufacturer when the terms of the settlement do not exceed the potential exclusionary scope of the patent.”

In agreeing that the Supreme Court should review the case, Watson states: “Respondent and the pharmaceutical industry as a whole require clarity as to the terms on which they may lawfully settle the litigation that is contemplated by statute.  Respondent therefore acquiesces in the petition for certiorari.”  Later in its brief, it criticizes the FTC’s (and Third Circuit’s) position that “pay for delay” agreements are “presumptively anticompetitive” as “inconsistent with this Court’s precedents, fail[ing] to properly account for intellectual property rights, disregard[ing] the fact that such settlements are often pro-competitive, and [being] premised upon economic analysis and data that are far from sufficient to support the Government’s sweeping approach.”  By contrast, argues Watson, the “scope of the patent” test[2] takes patent rights into account and furthers the public policy favoring settlement of disputes.  Watson points out that under the terms of the particular agreement that settled its litigation against certain generic drug companies, they are allowed to launch their generic versions of the patented drug in 2015 – five years prior to patent expiration.

The amici curiae brief jointly filed by 31 states, including New York, Arizona, Idaho, Kentucky, Louisiana, and Maine, to name few, sympathizes with the FTC’s position.  Those 31 states (“the Amici States”) declare their “strong interests, both as purchasers and as regulators, in protecting fair competition in pharmaceutical markets”; cite a $6.5 billion prescription drug expenditure by states and “local health care programs” in 2010; and assert that through parens patriae standing,[3] they have an interest in enforcing federal antitrust laws “to protect their citizens’ economic well-being against anticompetitive practices that raise prices and restrict consumer choice.”  The Amici States go on to argue: “Pay-for-delay settlements harm drug purchasers, both government health-care programs and consumers alike: such settlements delay the availability of generic drugs and keep drug prices artificially high.”

Have the parties and the Amici States presented a successful case for Supreme Court review?  Time will tell – one can periodically check the SCOTUSblog to see how the Court will decide the FTC’s petition a few months from now.


[1] The Eleventh Circuit defines such agreements as those in which a patent owner settles infringement litigation by paying “the allegedly infringing generic drug company to delay entering the market until a specified date, thereby protecting the patent monopoly against a judgment that the patent is invalid or would not be infringed by the generic competitor.”  Federal Trade Comm’n v. Watson Pharms., Inc., 677 F.3d 1298, 1301 (11th Cir. 2012), reh’g denied (11th Cir. Jul. 18, 2012).

[2] Watson describes this test as follows: “Under the ‘scope of the patent’ test, a final settlement of bona fide litigation to enforce a non-fraudulently obtained patent is immune from antitrust attack so long as its alleged exclusionary effects fall within the exclusionary potential of the patent, regardless of whether the settlement is accompanied by consideration to the generic manufacturer.”  Watson Brief at pp. 12-13.

[3] Parens patriae literally means “parent of the country,” and “[i]t is a concept of standing utilized to protect those quasi-sovereign interests such as health, comfort and welfare of the people, interstate water rights, general economy of the state, etc.”  Black’s Law Dictionary 1003 (5th ed. 1979).

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