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FTC Loses Antitrust Challenge To "Pay-For-Delay" Settlement In 11th Circuit

On April 25, 2012, the Eleventh Circuit Court of Appeals issued another in a series of decisions rejecting Federal Trade Commission (FTC) antitrust challenges to "reverse payment" or "pay-for-delay" drug patent litigation settlements. FTC v. Watson Pharmaceuticals, Inc.[1] Such a settlement resolves patent litigation between a branded pharmaceutical manufacturer and a generic drug manufacturer. Typically, the generic drug manufacturer has filed an Abbreviated New Drug Application with the FDA certifying that its generic version of a branded drug does not infringe the branded drug manufacturer's patent, or claiming that the patent is invalid. This usually prompts the branded drug manufacturer to institute a patent infringement action against the generic drug manufacturer. In view of the potentially massive cost and uncertainty of such litigation, the parties often settle the dispute, at times with a "reverse payment."

As defined by the Eleventh Circuit, a "reverse payment" settlement involves a payment by the branded drug manufacturer in return for an agreement by 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 be infringed by the generic competitor.[2] The FTC has in the past challenged such settlements as per se unlawful agreements between potential competitors not to compete. However, the majority view of the circuit courts to date is that, absent sham litigation or fraud by the branded drug manufacturer in obtaining the applicable patent, a reverse payment settlement does not violate the antitrust laws so long as its anticompetitive effects permit generic entry before expiration of the patent. The Eleventh CircuitWatson decision adopts this view and flatly rejects an FTC effort to limit its application.


In two decisions in 2001 and 2003, the DC and Sixth Circuits appeared to some commentators to have accepted the FTC's enforcement position that reverse payment settlements are, at their core, horizontal agreements to eliminate competition that are classic examples of per se unlawful antitrust violations.[3] But decisions in three other circuits, including the Eleventh Circuit, are to the contrary. The Eleventh Circuit first addressed the issue in 2003 in Valley Drug Co. v. Geneva Pharmaceuticals, Inc.,[4] enunciating a rule of reason test that considered first, whether the settlement agreement exceeded the exclusionary scope of the patent, and second, the overall competitive effect of the agreement. This test was reaffirmed by that circuit two years later inSchering-Plough Corp. v. FTC,[5] in which the court declared that absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent. This view also has been adopted in both the Second and Federal Circuits.[6]

The FTC Watson Suit

The FTC sought to avoid the majority rule of reason view of reverse settlement decisions by bringing suit in federal court in the Ninth Circuit against Solvay Pharmaceuticals, Inc, the owner of the drug patent involved, as well as against Watson Pharmaceuticals and two other generic competitors, challenging the antitrust legality of the applicable reverse payment settlements. However, the case was transferred from California to the Northern District of Georgia, where the suit was dismissed pursuant to the rule established in the prior Eleventh Circuit decisions.

On appeal before the Eleventh Circuit, the FTC sought to distinguish that court's earlier decisions by arguing, as it had done unsuccessfully before the district court, that its complaint had stated a claim because it alleged that the patent holder was "not likely to prevail" in the underlying infringement suit against the generic drug manufacturers. It contended that under those decisions, a district court in the Eleventh Circuit is required to evaluate the strength of the patent claims at issue in the infringement suit -- not just its facial scope -- and then to compare the "likely outcome" of that suit to the competitive effects that may be caused by the reverse payment restrictions.[7] According to the FTC, the patent holder "was not likely to prevail" in the infringement suit at issue, and for that reason the generic products would have reached the market sooner than permitted by the restrictive provisions of the settlement. According to the Commission, it had stated a valid claim, even in the Eleventh Circuit, "because a patent has no exclusionary potential if its holder was not likely to win the underlying infringement suit." Therefore, any reverse patent settlement "necessarily exceeds the potential exclusionary scope of the patent" under the Eleventh Circuit standard, "and must be seen as the patent holder's illegal 'buying off of a serious threat to competition.'"[8] It contended that the court should adopt the rule that a reverse settlement agreement is unlawful if, "viewing the situation objectively as of the time of the settlement, it is more likely than not that the patent would not have blocked generic entry earlier than the agreed-upon-entry date." [9]

The Eleventh Circuit Decision

The Eleventh Circuit specifically recognized the difficulty it faced in a case such as this one, which required it "to resolve the tension between the pro-exclusivity tenets of patent law and the pro-competition tenets of antitrust law."[10] In addressing this task, and after reviewing its earlier reverse payment decisions, the court declared that the FTC had misread the earlier Eleventh Circuit decisions, and it emphatically rejected the FTC's argument. The court stressed that the FTC's position "equates a likely result (failure of an infringement claim) with an actual result," explaining that "it is simply not true that an infringement claim that is 'likely' to fail actually will fail."[11] According to the Eleventh Circuit: "'likely' means more likely than not." Under that standard, "as many as 49 out of 100 times" the infringement action will succeed.[12] It added that the Commission's proposal improperly would have the court 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."[13] The court declined to accept that invitation. It pointed out that contrary to the standard the FTC sought, the Eleventh Circuit's earlier decisions had focused on "the potential exclusionary effect of the patent, not the likely exclusionary effect."[14] Accordingly, it rejected the proposed standard and affirmed dismissal of the FTC suit, adopting the "scope of the patent" test, which provides 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 with the scope of the exclusionary power of the patent."[15]

As another reason for its decision, the Eleventh Circuit emphatically stated that the approach the FTC had proposed would "impose heavy burdens on the parties and courts."[16] Considering just the case before it, the appellate court pointed out that at the time of settlement more than 40 depositions had been taken and one side alone had produced more than 350,000 pages of documents. Settlement made that unnecessary. The FTC's proposed standard, on the other hand, "would undo much of the benefit of settling patent litigation and discourage settlements. Our legal system can ill afford that."[17] Moreover, the FTC's proposal was "in tension with Congress' decision to have appeals involving patent issues decided by the Federal Circuit.[18]

The Fallout Of the Watson Decision

Of course, should the majority court of appeals view espoused in this latest Eleventh Circuit decision become even more established, or if it is ultimately adopted by the Supreme Court, the validity of high stake pharmaceutical patent litigation will be more predictable. However, legislative efforts are being made to overturn the "scope of the patent" standard and, despite this resounding loss, the FTC apparently plans to continue its fight in some manner. Thus, the FTC Chairman responded to theWatson decision by declaring that while reverse payment settlements may be a "win-win" result for the companies involved, "it's a lose-lose for consumers, who end up footing the bill. We continue to believe the conduct violates the antitrust laws. We will consider all our options going forward." [19]

[1] 2012 WL 1427789(11th Cir. Apr. 25, 2012).

[2] Id. at *1.

[3] See In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003); In re Andrx Pharms. Inc. v. Biovail Corp. Int'l, 256 F. 3d 799 (D.C. Cir. 2001).

[4] 344 F.3d 1294 (11th Cir. 2003).

[5] 402 F.3d 1056 (11th Cir. 2005). See also Andrx Pharmaceutical, Inc. v. Elan Corp., 421 F.3d 1227 (11th Cir. 2005).

[6] See In the Matter of Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006); Asahi Glass Co. v. Pentech Pharmaceuticals, Inc., 104 Fed. Appx. 178 (Fed. Cir. 2004) (not for publication). See also Arkansas Carpenters Health & Welfare Fund v. Bayer AG, 604 F.3d 98 (2d Cir. 201), as corrected (June 17, 2010), cert. denied, 131 S. Ct. 1606 (2011) (reaffirming, but questioning Tamoxifen test).

[7] Watson, 2012 WL 1427789 at *11.

[8] Id. at *11.

[9] Id.

[10] Id. at *7.

[11] Id. at *11.

[12] Id.

[13] Id. at *14.

[14] Id. at *11.

[15] Id.

[16] Id.

[17] Id. at *14..

[18] Id.

[19] See FTC Loses Androgel Pay-For-Delay Appeal In 11th Cir. (April 26, 2012),"

©2020 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume II, Number 166


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Greenberg Traurig's Antitrust Litigation & Competition Regulation Practice supports clients on the broad array of antitrust issues, drawing on the capabilities of attorneys in the United States, Europe, Latin America, and Asia. We advise on the antitrust aspects of mergers, acquisitions and joint ventures, including handling complex multi-jurisdictional merger control filings. We work with clients to craft antitrust compliance programs, oversee internal investigations, represent clients in government antitrust investigations, and are trial-ready for litigation when...