Late Last June the United States Supreme Court rejected an opportunity to review the decision of the 11th Circuit Court of Appeals in Schering-Plough Corporation v. Federal Trade Commission, 402 F. 3d 1056 (11th Cir. 2005). In that case the Circuit Court overturned the decision by the FTC finding that several settlements entered into by Schering-Plough with generic drug competitors that involved "reverse payments" by S-P to the generic producers as part of a settlement limiting the generics entry into the market to compete with S-P's K-Dur 20, timed release potassium Chloride tablets, but also granting S-P licenses for certain of the generic companies' products were not restraints of trade in violation of federal antitrust statutes. The Circuit Court reinstated a similar initial finding by an administrative law judge, which had in turn been reversed by the FTC. The Circuit Court, while noting that the issues in the case were at the clashing intersection of intellectual property law and antitrust law, held that patent cases are different and not subject to either the per se or rule of reason analysis.
The Circuit Court while asserting the fact that patents are inherently exclusionary and anticompetitive, determined that in patent cases the analysis required an examination as to the extent to which antitrust liability might undermine the encouragement of innovation and disclosure, or the extent to which the patent laws prevent antitrust liability for such exclusionary effects. Hence, the focus should be on 1) the scope of the exclusionary potential of the patent, 2) the extent to which the agreements exceed the scope, and 3) the resulting anticompetitive effects.
The Court cited the admission by FTC counsel that the FTC could not prove that the generic companies involved in the settlements could have entered the market on their own prior to the expiration of the Schering-Plough settlement. It went on to find that there was no substantial evidence in the case to support the FTC's conclusion that the challenged agreements restrict competition beyond the exclusionary effects of the S-P patent.
Simply because a brand-name pharmaceutical company holding a patent paid its generic competitor money cannot be the sole basis for a violation of antitrust law. This alone underscores the need to evaluate the strength of the patent. Our conclusion to a degree, and we hope that the FTC is mindful of this, reflects policy. Given the costs of lawsuits to the parties, the public problems associated with overcrowded court dockets, and the correlative public and private benefits of settlements, we fear and reject a rule of law that would automatically invalidate any agreement where a patent-holding pharmaceutical manufacturer settles an infringement case by negotiating the generic's entry date, and, in an ancillary transaction, pays for other products licensed by the generic.
The FTC filed a Writ of Certiorari with the United States Supreme Court asserting among other things a misapplication of the federal antitrust law and policy and a conflict among two circuit courts of appeal on the applicable law and standards, citing the 6th Circuit Court of Appeals decision in Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003)( It may be per se unlawful for a patent holder to "bolster the patent's effectiveness in inhibiting competitors by paying the only potential competitor to stay out of the market).
Whether or not there was a conflict in the circuits about this issue, there is certainly a conflict in the government. The Supreme Court asked the Department of Justice to weigh in with its views on the issue and it filed a brief asking the Court to reject the FTC's writ asserting that these important issues were not well presented in this case and challenged its assertion that there is a conflict in the circuits.
After correctly articulating the wee-settled principles of deference to agency fact-finding under the substantial-evidence standard of review, the court of appeals held that the evidence overwhelmingly supported the ALJ's conclusion that the payment was not linked to Upsher's delay in entering the market. Unless overturned, that determination forecloses any antitrust challenge to the (Schering-Plough) Upsher settlement, even under the FTC's Theory.
Regarding the "conflict" with the Cardizem case, the Justice Department declared,
As the United States and the FTC previously informed this Court, however, the Sixth Circuit's decision involved payments to exclude drugs that din not fall within the scope of the patent alleged to be infringed, and thus is far from clear that the per se rule employed by the Sixth Circuit extends beyond the unique circumstances of that case.
Since June several legislators have filed bills in the Congress to outlaw the reverse payment settlement arrangements and the FTC has announced its intent to continue its pursuit of such settlements as being anticompetitive. Consumers still complain about outrageous drug prices in the United States. Big Pharmaceutical Companies despair of high drug development costs and precious few exciting new drugs in their "pipelines." So it goes.
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