The New Executive Branch Weighs In
Under the Bush administration, the FTC took the same position it takes today on reverse payment settlements—they are bad for competition and should be outlawed. This position was not shared, however, by Bush administration officials at the U.S. Department of Justice, an organization that remained largely silent on the issue—until now. President Obama’s new Assistant Attorney General heading the Antitrust Division of the Justice Department, Christine Varney, wasted no time in directly addressing this issue. Ms. Varney testified during her Senate confirmation hearings that “[she is] very concerned that certain reverse payment settlements, which slow the entry of generic drugs into the market, can negatively impact consumer choices and costs.”1 Ms. Varney, thus, has “pledge[d] to work with the FTC to more closely align the agencies on this matter and develop a unified approach to dealing with reverse payment settlements.”2
Ms. Varney’s objectives are consistent with President Obama’s push to place health care reform at the top of the domestic agenda, and with President Obama’s position on the issue of drug patent settlements. As a Senator, Mr. Obama co-sponsored a prior version of the pending legislation designed to outlaw pay-for-delay settlements. President Obama campaigned on this issue and, since taking the reigns at the White House, has included a provision in his 2010 budget indicating a commitment to prevent drug companies from blocking consumers’ access to generic drugs by using alleged anticompetitive agreements.
Congress Tries Again
On February 3, 2009, the U.S. Senate introduced S. 369, its second bill targeting reverse payment settlements—the “Preserve Access to Affordable
Generics Act” (“version 2.0”). Similarly, on March 25, 2009, the U.S. House of Representatives introduced its first effort to curtail reverse payment settlements—H.R. 1706, the “Protecting Consumer Access to Generic Drugs Act of 2009.” Both bills, if enacted, would outlaw any agreement resolving or settling a patent infringement claim in which a generic patent challenger (1) receives anything of value and (2) agrees not to “research, develop, manufacture, market or sell, for any period of time,” the generic version of the drug at issue. The only permissible settlement under either bill would be one in which the generic challenger receives the right to bring its generic drug to the market before the expiration of the underlying brand-name patent.
That these proposed acts would essentially end reverse payment settlements is clear, but whether either bill will actually become law is much more uncertain. S. 369 is in Committee and under review in the Senate; the Commerce, Trade and Consumer Protection subcommittee of the House Energy and Commerce committee passed H.R. 1706 by a 16-10 vote on June 3, 2009. Similar legislation (“version 1.0”) was introduced in the Senate last year by Herb Kohl (D-Wis.) (the proponent of S. 369). Version 1.0 of the bill cleared the Senate Judiciary Committee but died on the Senate floor as a result of pressure from lobbyists and Senate Republicans who expressed concerns over the bright-line rule proposed by the legislation. Version 2.0 of the Senate bill (and H.R. 1706) now contains a provision by which the FTC can exempt certain agreements from the ambit of the statute if the FTC finds that the settlement agreement promotes market competition. Whether this compromise will sufficiently pacify drug lobbyists or Congressional Republicans, however, remains to be seen.
Court Battles Continue
Litigation, brought by the FTC and private litigants, challenging reverse payment settlements continues despite the Federal Circuit’s decision in In re Ciprofloxacin upholding these types of agreements.3 The Ciprofloxacin decision is discussed in full detail in the Reed Smith Antitrust Regulator (Winter 2009, Vol. II, No. 1).
The latest suit challenging the validity of reverse payment settlements, Federal Trade Commission v. Watson Pharmaceuticals, Inc., No. 2:09-CV=00598, was hit with a body blow April 8, 2009, when the U.S. District Court for the Central District of California granted defendants’ motion to transfer venue of the case to the U.S. District Court for the Northern District of Georgia—the forum where the parties entered into the reverse payment settlements at issue in the case. The FTC, the California Attorney General, and several private plaintiffs (in follow-on class action suits) sued Watson Pharmaceuticals, Par Pharmaceuticals Companies, Paddock Laboratories, Solvay Pharmaceuticals and Unimed Pharmaceuticals challenging the legality of settlements resolving a patent dispute over the brand name drug Androgel.
Plaintiffs’ strategy in this litigation was to litigate the dispute in the Ninth Circuit, which has not yet decided the legality of these types of reverse payment settlements, in an attempt to create a circuit split on reverse payments, and, at the same time, avoid less-favorable law on these issues in the Eleventh Circuit. The District Court stated that, as with other cases involving reverse-payment settlements where the FTC has been criticized for openly forum shopping for a circuit split, “[h]ere too, the FTC’s desire to create a circuit split for strategic reasons bears little weight on the determination of transfer in the interest of justice and convenience of the parties and witnesses.”4 In Georgia, plaintiffs will be faced head-on with the Eleventh Circuit precedent in Schering-Plough v. FTC,5 in which the Court of Appeals, applying a rule of reason analysis to the agreement at issue, found the reverse payment settlement to be legal because the scope of the settlement fell “well within the protections of the [underlying] patent.”6
The FTC recently lost another jurisdictional battle when the U.S. District Court for the District of Columbia granted defendants’ motion to transfer the FTC’s case against brand name manufacturer Cephalon to the U.S. District Court for the Eastern District of Pennsylvania. In Federal Trade Commission v. Cephalon, Inc.,7 the FTC sued Cephalon, the brand name manufacturer of the drug Provigil. At the time the case was transferred, Cephalon’s motion to dismiss was pending before the D.C. District Court.
The Cephalon case is significant for two reasons. First, the FTC sued only Cephalon in this case, and not the generic patent-challengers. This marks a change in strategy by the FTC, which alleges for the first time monopoly claims under Section 2 of the Sherman Act only against the brand manufacturer, rather than asserting an unreasonable restraint of trade claim against both the brand and generic drug manufacturers under Section 1 of the Sherman Act. While the FTC ultimately may benefit by bringing its suit under Section 2 to challenge Cephalon’s conduct as a whole, rather than attacking specific reverse payment agreements, this suit will not advance the FTC’s goal of creating a circuit split ripe for U.S. Supreme Court review. The Cephalon case is also significant because it will provide courts in the Third Circuit with their first opportunity to rule on issues related to reverse payment settlements, albeit under a new theory of liability. A status conference in the Cephalon case is scheduled for late July 2009.
Though the FTC now has an uphill battle in the Eleventh Circuit, and an uncertain future in the Third Circuit, a group of direct purchaser plaintiffs hopes to fare better in the Sixth Circuit. Litigation has been brought in the U.S. District Court for the Southern District of Ohio by plaintiff Meijer Distribution Inc., as well as other direct purchasers of the brand name drug Plavix, against defendants Bristol-Myers Squibb, Sanofi-Aventis and others.8 Defendants have filed a motion to dismiss that was argued September 11, 2008, and the District Court has ordered a stay of discovery but has not yet ruled on the motion to dismiss. The outcome of In re Plavix is expected to be significant because the Sixth Circuit has been, to date, the most plaintiff-friendly circuit to address challenges to reverse payment settlements. In 2003, the Sixth Circuit affirmed a District Court decision finding a reverse payment settlement to be per se illegal.9
U.S. Supreme Court Involvement
In addition to the lower federal court litigation currently pending, parties and amici have petitioned the U.S. Supreme Court to grant certiorari and address the varying views taken by the Circuits on reverse payment patent settlements. Petitioners in Arkansas Carpenters Health and Welfare Fund, A.F. of L. v. Bayer AG and Bayer Corp.,10 have asked the Supreme Court to decide whether reverse payment settlements are (1) illegal per se as petitioners read the Sixth Circuit decision in In re Cardizem; (2) per se legal as petitioners read the Second Circuit decision in In re Tamoxifen Citrate Antitrust Litigation11 and the Federal Circuit decision in In re Ciprofloxacin12; or (3) whether these settlements should be judged under the rule of reason analysis employed by the Eleventh Circuit in Schering-Plough13. No conference has been scheduled by the Supreme Court on this cert petition.
The next several months will be crucial to the pharmaceutical industry’s future ability to utilize reverse payment agreements to settle patent infringement litigation. In the meantime, pharmaceutical companies would be well-served to consult with experienced counsel for assistance navigating this complex landscape.