Markets Wired

The Federal Trade Commission filed an amicus brief in the U.S. Court of Appeals for the First Circuit urging the court to reject a district court decision in a reverse-payment patent settlement case holding that an alleged non-cash payment from a brand to a generic to delay entering with its generic version of the branded drug escapes antitrust scrutiny because the payment was not in cash.

Reverse-payment patent litigation settlements, sometimes referred to as “pay-for-delay” settlements, are agreements in which a brand-name drug manufacturer pays a would-be generic competitor to abandon its patent challenge and refrain from offering its generic drug product for a number of years. In its landmark 2013 decision, Federal Trade Commission v. Actavis Inc., which stemmed from the FTC’s pay-for-delay case against several pharmaceutical manufacturers, the U.S. Supreme Court held that reverse-payment patent settlements are not immune from antitrust scrutiny and should be evaluated using traditional antitrust factors.

At issue in the underlying case are allegations by private plaintiffs that several generic pharmaceutical companies sought to challenge Warner Chilcott’s patent on oral contraceptive Loestrin 24 and sell generic versions of the drug, but they later agreed to drop their patent challenges in exchange for Warner Chilcott’s agreement to provide various non-cash forms of compensation.

In September 2014, the U.S. District Court for the District of Rhode Island found that reverse-payment patent settlements, like the one allegedly involving Loestrin, are immune from antitrust scrutiny under the standards established by the Actavis decision unless the payments are made in cash.

The FTC’s amicus brief argues that the Actavis decision applies to both cash and non-cash payments and that limiting antitrust scrutiny only to cash payments makes no economic sense. Patent litigation settlements involving non-cash payment forms allow brand companies to maintain and share monopoly profits at least to the same extent as settlements involving cash payments. The FTC filed a similar brief last year in the U.S. Court of Appeals for the Third Circuit regarding the case of Lamictal Direct Purchaser Antitrust Litigation, which is still pending.

The FTC’s amicus brief also showed that agreements by a branded drug firm not to introduce an “authorized generic” form of its own branded drug when a generic company might otherwise enjoy a statutory six-month period of exclusive generic sales likewise can harm competition and raise prices to consumers. The lack of competition from an authorized generic product during the exclusivity period tends to result in higher generic prices, until full-scale generic competition begins.

The FTC pointed out that the generic company’s promise to refrain from competition prior to introducing its generic product and the branded firm’s promise to refrain from competition through an authorized generic once a generic company enters the market represent mutual agreements not compete. Such market divisions have long violated antitrust laws.

The FTC vote approving the amicus brief filing was 5-0. It was filed with the U.S. Court of Appeals for the First Circuit on June 16, 2015. (FTC File No P082105); the staff contact is Mark Hegedus, Office of the General Counsel, 202-326-2115.)

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