Distribution, Competition, and Antitrust / Intellectual Property (IP) Law

The Continuing Saga of Reverse Payment Patent Litigation

Lower generic drug costs

Lower generic drug costs (Photo credit: BC Gov Photos)

In FTC v. Watson Pharmaceuticals, Inc. (Supreme Court No. 12-416), the FTC unsurprisingly filed a merits brief this month again arguing that pay-for-delay (or “reverse payment”) patent settlements are presumptively anti-competitive.

These settlements often occur in connection with the Hatch-Waxman Act and patent lawsuits filed by a patent-owning pharmaceutical manufacturer against a would-be generic manufacturer. Following a patent lawsuit, the branded manufacturer will pay the generic compensation in return for the generic’s agreement to stay off the market for some period of time.  According to the FTC:

Given the significant difference between monopoly and competitive drug prices, a brand-name manufacturer has a strong economic incentive to induce its would-be generic competitor to forgo competition. And while the generic manufacturer will profit if it prevails in paragraph IV [Hatch-Waxman] litigation and enters the market, its profits will be much less than the brand-name manufacturer stands to lose. As a result, both the brand-name and generic manufacturers may benefit (at the expense of consumers) if the brand-name manufacturer agrees to share its monopoly profits in exchange for the generic manufacturer’s agreement to defer its own entry into the market.

FTC brief at 8-9. The FTC’s position is contra that of the Eleventh Circuit and mostly in line with that of the Third Circuit, which in In re K-Dur Antitrust Litigation, 686 F.3d 197, 214 (3d Cir. 2012), held that reverse payment agreements are subject to a “quick look rule of reason analysis” under which “any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market [is] prima facie evidence of an unreasonable restraint of trade.” Id. at 218.

Oral argument is set for March 25.

I previously covered Watson and K-Dur.

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