Eric Stock Nathaniel S. Boyer March 31 2011 Reverse payment patent settlements: split between FTC and courts continues Hogan Lovells | Competition & Antitrust - USA Eric Stock, Nathaniel S. Boyer Competition & Antitrust Cipro decisionFTC's continuing effortsThe Federal Trade Commission (FTC) is continuing its longstanding effort to stop patent settlements with so-called 'reverse payments', but the courts continue to analyse these settlements more leniently than the FTC. The FTC and advocates of its approach had hoped that the Second Circuit would reconsider its previous precedent setting a high standard for antitrust challenges to such patent settlements, but these hopes were dashed when the Second Circuit declined a motion for en banc review of a panel decision reaffirming the earlier precedent. The US Supreme Court similarly declined to review the decision. Meanwhile, legislative efforts that would have made it much easier to attack these patent settlements have stalled in Congress.Cipro decisionOn September 7 2010 the US Court of Appeals for the Second Circuit denied a motion by the plaintiffs in In re Ciprofloxacin Hydrochloride Antitrust Litigation(1) for an en banc rehearing of a panel decision dismissing their antitrust challenge to the settlement at issue in Cipro. The panel decision had applied the standards of the Second Circuit's earlier decision in In re Tamoxifen Citrate Antitrust Litigation. In denying the motion, the Second Circuit rejected efforts by the Cipro plaintiffs, the FTC and the members of the Cipro panel itself to overturn the rule established in Tamoxifen.The FTC and the Department of Justice, as well as private plaintiffs and other advocacy groups, have objected on antitrust grounds to settlements of patent litigation between a brand-name manufacturer and a generic manufacturer where such settlements include: a compromise date for generic entry; and consideration flowing from the brand-name manufacturer to the generic. The consideration provided to the generic is sometimes called a reverse payment because more typically, IP cases are settled with a payment from the alleged infringer to the patent holder. In this case, consideration flows in the reverse direction to the alleged infringer, often as part of an ancillary business deal between the settling parties. According to the FTC and other challengers, such settlements are almost always anti-competitive because, in their view, one can assume that without the reverse payment, the generic manufacturer would have insisted on an earlier entry date. However, the courts have largely disagreed. In Tamoxifen (and now Cipro), the Second Circuit (like several other courts) has held that patent settlements with reverse payments are lawful under the antitrust laws unless there is evidence that the settlement restricts competition outside the scope of the patents at issue in the underlying infringement action. Although it is rare for the Second Circuit to grant petitions for rehearings en banc, denial of rehearing in this case is still notable. Rehearing had been encouraged via amicus submissions by the FTC, the Department of Justice, 39 state attorneys general and numerous private organisations and academics. Additionally, the original Cipro panel had questioned the Tamoxifen precedent and called on the full court to grant rehearing en banc. On the other hand, the effort to overturn Tamoxifen was clearly swimming against the judicial tide. Numerous courts have held that antitrust challenges to patent settlements must show that the patent holder's patents were somehow weak or baseless in order for there to be any evidence that the settlement impacted on competition outside the scope of a lawful patent monopoly. These courts have reasoned that unless the generic manufacturer's product can be shown to be non-infringing (or the patent can be shown to be invalid), then the patent holder has merely excluded competition from a competitor that was illegal in the first place.(2)The plaintiffs' appeal to the Supreme Court was similarly unsuccessful. FTC's continuing effortsThe FTC still continues to pursue its efforts against reverse payment patent settlements on several fronts. First, the FTC is pursuing a case challenging patent settlements relating to the drug Provigil in the Eastern District of Pennsylvania. Second, it is appealing to the Eleventh Circuit a district court's dismissal of its case challenging a patent settlement relating to the drug Androgel. In each of these cases, the courts have issued rulings indicating that they disagree with the FTC's proposed strict standard for these patent settlements. Finally, the FTC continues to seek passage of legislation that would require the courts to apply stricter standards (although not an outright ban) to reverse payment patent settlements. This legislation passed the House of Representatives last year, but was not passed by the Senate. With the Republican takeover of the House, the chances of this proposed legislation becoming law have decreased further.For further information on this topic please contact Nathaniel S Boyer or Eric J Stock at Hogan Lovells US LLP by telephone (+1 212 918 3000), fax (+1 212 918 3100) or email ([email protected] or [email protected]).Endnotes(1) 604 F 3d 98 (2d Cir 2010).(2) See, for example, Schering-Plough Corporation v FTC, 402 F 3d 1056 (11th Cir 2005); In re Ciprofloxacin Hydrochloride Antitrust Litig, 544 F 3d 1323 (Fed Cir 2008).