Last month, the US Federal Trade Commission (FTC) released its findings on reverse payment settlements between pharmaceutical companies in the 2010 US fiscal year.

The report found that of the 113 patent settlement agreements reviewed by the FTC during FY2010, 31 contained a payment by an originator company to a generic company in conjunction with a restriction on the generic’s ability to enter the market. In another 66 agreements, the FTC stated that there was a market restriction without any "explicit compensation", while 16 settlements had no restrictions on market entry.

US law requires patent settlement agreements between pharmaceutical companies to be filed with the FTC. The FTC then reviews and reports on these agreements annually. Where an agreement includes a payment by an originator company to a generic company in return for the generic agreeing to delay market entry of its version of the originator’s drug, the FTC has taken the view that these alleged "pay-for-delay" agreements violate US antitrust laws by restricting competition and increasing drug prices. While the US Court of Appeals for the 6th Circuit ruled in 2003 that pay-for-delay agreements were per se illegal (In re Cardizem CD Antitrust Litigation), subsequent US courts have found that such agreements are not anti-competitive.

The FTC has a particular concern where pay-for-delay agreements involve a generic company that was the first to file for marketing approval for a generic drug. Under US law, the "first-filer" is granted 180 days market exclusivity and, if it enters into an agreement with the originator, this 180 day exclusivity provision won’t begin to run until the first filer enters the market − thereby preventing other generics from entering the market. The report noted that 26 of the 31 pay for delay agreements in FY2010 involved first filers.

The issue of reverse settlement agreements is an interesting one. Regulators like the FTC are quick to jump to the conclusion that patent settlement agreements are anti-competitive, with little regard for other considerations such as the benefits of settling proceedings out of court. The IP Whiteboard team has previously reported on the issue of reverse settlement agreements in Europe, and litigation brought by the FTC against Bayer and Cephalon in the US.

For an analysis of how reverse settlement agreements fare in Australia, click here to read our recent Alert.