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).A generic manufacturer may enter the market after a patent on a brand name pharmaceutical has expired. The Hatch-Waxman Act of 1984 provided incentives for generic companies to enter the market, and was a Congressional attempt to jumpstart the generic pharmaceutical business in the U.S. Brand-name pharmaceutical companies were offered patent term restoration when effective pharmaceutical patent terms had been eroded by clinical testing and FDA approval. A generic pharmaceutical company could rely on the safety and efficacy data provided by the brand-name pharmaceutical company when it sought FDA approval for the original compound, as long as the generic compound was bioequivalent to the approved pharmaceutical. The Hatch-Waxman Act also provides that the generic company may challenge a patent before its expiration with preparation for a generic launch by engaging in pre-market activites that could constitute patent infringement. If the brand name patent holder sues the generic rival for patent infringement, the underlying patent is potentially at risk in litigation, and a successful case for the generic could terminate patent protection altogether. As a result, brand name companies have sought to keep generic competitors at bay by offering a deal to the generic – a “reverse payment” – paying them to stay out of the market (pay to delay), in exchange for ending the patent litigation. As a result, the generic entry is delayed, brand name market dominance continues (perhaps past the patent term) and consumers are deprived of lower cost pharmaceuticals (see here for my article discussing the impact on breast cancer treatment due to the delayed entry of generic Tamoxifen).
FTC v. Actavis asks whether these pay-to-delay settlements contravene the purpose of Hatch-Waxman and also raise antitrust concerns, pursuant to the Sherman Act. The FTC has statutory authority to review all such reverse payment agreements, and has challenged several in court, including here. A number of federal appellate courts have applied different tests for the antitrust analysis – and the case at bar is the 11th Circuit’s dismissal of the FTC’s complaint over a settlement involving the brand name Androgel (testosterone gel) made by Solvay and several potential generic competitors. The Third Circuit, in contrast, had ruled for the FTC in In Re: K–Dur Antritrust Litigation (2012). Some confusion has attended to the analysis of these agreements as patent law’s right to exclude must coexist with antitrust law’s policing of anticompetitive behavior. The FTC has urged a “quick look” standard to the Court – asking that court regard such settlements as presumptively illegal, absent a showing of a pro-competitive benefit to consumers. The FTC has reported 40 pay for delay settlements in 2012, a record number, and has calculated that the deals cost American consumers $3.5 billion a year in higher health care costs. Legislative action to curb pay for delay remains an ongoing possibility, the Fair Access to Affordable Generics Act has been introduced in the Senate and would outlaw such settlements (earlier legislative attempts have failed). Notwithstanding the antitrust basis on which the case will be decided, the pay-to-delay settlements also frustrate litigation against potentially invalid patents, an outcome that conflicts with patent law’s norm of endorsing the exercise of patent rights only when pursuant to legally valid patents. Most clearly, they undercut the underlying rationale of Hatch-Waxman, which was to speed the entry of generics into the pharmaceutical marketplace.