The Third Circuit Court of Appeals issued a ruling in mid-July that found “any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market [must be treated by a factfinder] as prima facie evidence of an unreasonable restraint of trade,” thus supporting the Federal Trade Commission’s (FTC’s) view that pay-for-delay deals that settle patent disputes between name-brand pharmaceutical companies and their generic drug competitors violate antitrust law. In re: K-Dur Antitrust Litig., Nos. 10-2077, -2078, -2079, -4571 (3d Cir., decided July 16, 2012).

The court specifically rejected contrary rulings adopted in the Second, Eleventh and Federal Circuits, which apply a “scope of the patent” standard under which these agreements are permitted if the exclusion does not exceed the patent’s scope, the patent holder’s claim of infringement was not objectively baseless, and the patent was not procured by fraud on the U.S. Patent and Trademark Office. The Eleventh Circuit recently declined a request to rehear en banc its decision to dismiss the FTC’s antitrust challenge to pay-for-delay deals with several generic drug companies. FTC v. Watson Pharms., Inc., No. 10-12729 (11th Cir., decided July 18, 2012). Additional details about the Third Circuit opinion and related rulings, as well as the regulatory context for these matters appear in the July 2012 issue of IpQ, a newsletter prepared by Shook, Hardy & Bacon Intellectual Property Partner Peter Strand.  

The New York Times notes that the Third Circuit’s decision “potentially sets up a confrontation before the United States Supreme Court,” which often bases its decisions to grant review of cases on splits among the circuit courts of appeals. Industry leaders have suggested that the ruling is an anomaly, unlikely to be followed by other courts. A bill that would stop the companies from entering pay-for-delay deals remains stalled in the U.S. Senate despite claims by the Congressional Budget Office that the legislation could reduce drug costs in the United States by $11 billion and save the federal government $4.8 billion over 10 years.  

Pharmaceutical companies contend that the settlements are a cost-effective way of resolving patent disputes with generic manufacturers, which also deny that the agreements are collusive. Generic Pharmaceutical Association Chief Executive Ralph Neas was quoted as saying, “These agreements have never delayed the availability of a generic drug past the expiration of a brand-name drug’s patent.” He noted that, in recent years, generic drugs reduced drug costs in the United States by $931 billion and one-third of the cost savings was a result of patent settlements. See The New York Times, July 26, 2012.