US Supreme Court Rules On Pharma Payments To Delay Generic Drugs On Market

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The United States Supreme Court in a five to three decision today found that settlement agreements by branded pharmaceutical companies involving payments to generic companies to delay their cheaper drugs’ entry into the market may not be immune from antitrust scrutiny but are not “presumptively” unlawful. The case was sent back to lower court.

In its decision [pdf], the Supreme Court reversed the judgment of the Court of Appeals for the Eleventh Circuit, which had dismissed the US Federal Trade Commission’s (FTC) complaint that reverse payments by brand owner Solvay Pharmaceuticals to several generic pharmaceutical companies were violating the FTC Act “by un­lawfully agreeing to abandon their patent challenges, to refrain from launching their low-cost generic drugs, and to share in Solvay’s mo­nopoly profits.”

So-called reverse agreements are patent litigation settlements, also called “pay for delay” agreements. They happen when a branded pharmaceutical manufacturer, which had sued a generic company for alleged patent infringement, settles and pays that generic company for delayed entry market.

In the case of Federal Trade Commission v. Actavis Inc, et al., Solvay Pharmaceuticals obtained a patent for brand-name drug Androgel, a prescription gel used to treat hypogonadism, a medical condition in men which present low levels of testosterone.

Generic company Actavis, and Paddock, another generic company, later joined by Par, filed applications for generic drugs modelled after AndroGel, according to the judgment, under the so-called Hatch-Waxman amendment (Drug Price Competition and Patent Term Restoration Act). The Hatch-Waxman amendment amended the Federal Food, Drug, and Cosmetic Act in particular to “authorize abbreviated applications for the approval of a new drug” (IPW, US Policy, 23 March 2013).

The Hatch-Waxman amendment also provides “an incentive of 180 days of market exclusivity to the ‘first’ generic applicant who challenges a listed patent by filing a paragraph IV certification and thereby runs the risk of having to defend a patent infringement suit,” according to the US Food and Drug Administration.

Actavis and Paddock certified that Solvay’s patent was invalid and that their drugs did not infringe Solvay’s patent. Consequently, according to the judgment, Solvay sued Actavis and Paddock for patent infringement.

Later, Actavis entered into a reverse payment settlement agreement with Solvay, by which Actavis agreed not to bring its generic to market for a number of years, and agree to promote AndroGel to urologists “in exchange for millions of dollars,” according to the judgment. It detailed that “Solvay agreed to pay millions of dollars to each generic – $12 million in total to Paddock; $60 million in total to Par; and an estimated $19 – $30 million annually, for nine years, to Actavis” (until 2015).

According to the judgment, “most if not all reverse payment settlement agreements arise in the context of pharmaceutical drug regulation.”

The Supreme Court found that “reverse payment settlements such as the agreement alleged in the complaint before us can sometimes violate the antitrust laws. We consequently hold that the Eleventh Circuit should have allowed the FTC’s lawsuit to proceed.”

Furthermore, the Supreme Court found that payment in return for staying out of the market keeps prices at “patentee-set levels,” which might lead to a situation where “the patentee and the challenger gain; the consumer loses.”

One of the elements considered by the Supreme Court was the amount of the reverse payment. It “suggests that the payment’s objective is to maintain supra competitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market,” which might constitute an anticompetitive behaviour.

Three Judges Dissenting

The decision of the Supreme Court was not unanimous, with three of the judges dissenting (Roberts, Scalia and Thomas). In particular, they found that the case was more relevant to patent law than to anticompetition law, as “A patent carves out an exception to the applicability of antitrust laws.”

The decision, they said, could discourage the settlement of patent litigation, which “is unfortunate,” they said, “because patent litigation is particu­larly complex, and particularly costly.” It could also, they said, discourage generics from challenging pharmaceutical patents, by removing “the generic’s expected value going into litigation.”

A patent holder “acting within the scope of its patent does not engage in any un­lawful anticompetitive behavior; it is simply exercising the monopoly rights granted to it by the Government,” they said, adding: “Its behavior would be unlawful only if its patent were invalid or not infringed.”

They also assert that the Court assumes that proposing a large sum “is reliable evidence that the patent holder has serious doubts about the patent,” while this is “not true.” A patent holder, even if 95 percent sure of the validity of its patent, would rather settle than face the risk of a finding of invalidity, they said.

No Major Consequences of Decision?

According to William Gaede, intellectual property litigation partner specialising in life sciences patent issues for McDermott Will & Emery LLP, reverse payments to generic companies are widely used in the pharmaceutical industry and account for about 30 percent of all settlements. In the present case, the amounts stood out, he told Intellectual Property Watch.

The position of the FTC has been the same for the last five or six years, he said, which is that any reverse payment, except those intended to cover costs such as litigation costs, are considered as anti-competitive.

In terms of consequences of the Supreme Court decision, Gaede said it should not have significant effects. It should not altogether deter reverse payments, he said, even if companies might be less likely to agree to the traditional forms of reverse payments for the risk of an FTC antitrust lawsuit, he said. Every settlement has to be sent to the FTC for review, he explained.

Generic companies should still be drawn by the 180 day exclusivity granted by the Hatch- Waxman amendment to first filers, he said, which is a “powerful incentive to develop generics and challenge patents.” “That incentive is still intact,” he said.

Actavis Lauds Decision but Wary of Consequences

Actavis, commented the decision and said, “We believe this decision continues to provide for a lawful and legitimate pathway for resolving patent challenge litigation in a manner that is pro-competitive and beneficial to American consumers.”

“The Court’s ruling however, does place an additional and unnecessary administrative burden on our industry,” said Paul Bisaro, president and CEO of Actavis, in a release.

“Patent settlements have saved and continue to save consumers billions of dollars, and ensure more-timely introduction of generic competition. We plan to continue to defend the propriety of such settlements against any further legislative or judicial challenges,” he said.

Civil Society Applauds Decision

Civil society had raised concerns that reverse payments were delaying entry of generics on the market and protect weak patents.

For Knowledge Ecology International (KEI), which had submitted an amicus curiae brief in the case, “The majority of the Court rightly found that pay-for-delay settlement agreements should be subject to antitrust scrutiny and repeatedly reminds that the public interest is central in examining these disputes.”

“Pay-for-delay had effectively been used by branded pharmaceutical companies to protect weak patents and delay entry of generics into the market, thereby hindering the very purpose of the Hatch-Waxman Act,” said Krista Cox, staff attorney for KEI.

Supreme Court Dismisses “Quick Look” Test

In its decision, the Supreme Court said the “rule of reason” should be applied rather than a quick-look approach. According to the decision a “quick-look analysis in effect ‘shifts to´ a defendant the burden to show empirical evidence of pro competitive effects.” It sent the case back to the lower court.

The “rule of reason,” is “a judicial doctrine of antitrust law which says a trade practice violates the Sherman [antitrust] Act only if the practice is an unreasonable restraint of trade, based on economic factors,” according to USLegal.

“We are pleased that the Court rejected the FTC’s proposed ‘quick look’ test, and did not rule that settlement agreements are presumptively unlawful. Rather, the Court has established that the ‘rule of reason’ be applied, and left it to the lower courts to determine if the benefits of the settlement outweigh harm to consumers,” Actavis said.

“Although the majority ultimately takes a more moderate approach, applying the antitrust ‘rule-of-reason’ approach, than the FTC’s proposed rule of presumptive illegality of these settlement agreements, finding that antitrust principles apply even in patent litigation is ultimately a win for consumers,” Cox said. “It is important to remember, as the majority of the Court suggests, that both antitrust and patent policy are designed to promote the public interest and immunizing patent settlement agreements from antitrust scrutiny harms this very purpose,” she concluded.

According to Market Watch, Actavis’s shares were affected by the decision in the minutes after it was issued but “others in the company’s peer group didn’t seem to be affected much by the decision.”

 

Catherine Saez may be reached at info@ip-watch.ch.

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