On February 2, 2009, the FTC filed its latest challenge to a patent litigation settlement involving a so-called “reverse payment.” The case was filed by the FTC along with the California Attorney General in federal district court in California against Solvay Pharmaceuticals, Inc. and two generic companies which had settled patent litigation with Solvay over generic versions of Solvay’s product Androgel. The case illustrates the FTC’s latest strategy in connection with its so far largely unsuccessful efforts to challenge reverse payment settlements.
The Androgel Patent Litigation and Settlements
The following facts are taken from the FTC’s Amended Complaint, which was filed on February 12, 2009. Androgel (a synthetic testosterone gel) has been Solvay’s most successful and profitable product in the U.S., with domestic revenues of over $300 million in 2006. In 2003, two generic companies – Watson Pharmaceuticals and Paddock Laboratories, Inc. – filed applications to market generic versions of Androgel. Each alleged that Androgel’s patent was invalid and that its generic product did not infringe Solvay’s Androgel patent. Solvay subsequently sued each for patent infringement under the Hatch-Waxman Act.
In 2006, Watson and Paddock each settled the patent litigation with Solvay with an agreement that it would not enter the market until 2015 – five years before Solvay’s Androgel patent was set to expire. Solvay also entered into separate “side deal” agreements with each generic company involving payments to the generic companies in return for certain services. In the Watson agreement, Watson agreed to co-promote Androgel in return for a significant cash payment (Solvay projected $19 million for the first year). In the second agreement (which involved Paddock’s business partner Par Pharmaceuticals as well), Par agreed to co-promote Androgel and Paddock agreed to serve as a back-up manufacturer for Solvay. In return, the two generic companies are to receive approximately $12 million per year for 6 years.
The FTC’s complaint contains numerous allegations attempting to suggest that the cash payments made to the generic companies as part of the “side deals” were in fact compensation for a delayed entry date, and not part of bona fide separate transactions. The FTC alleges, for example, that Solvay wanted to avoid generic entry prior to 2015 because it expected to introduce a line extension in that year to which it would shift its Androgel patient population (and thus blunt the impact of generic entry). The FTC also alleges that the compensation paid to each generic company was recognized during settlement negotiations as consideration for the 2015 entry date, and not considered to be a separate transaction that could stand on its own.
Finally, the FTC alleges that Solvay entered into these settlements, at least in part, because its patent was weak. The FTC noted that synthetic testosterone is not patented, and that Solvay had only one formulation patent. Describing the generic companies’ legal positions concerning noninfringement and invalidity, the FTC alleged that the Solvay’s patent lawsuits were ultimately “unlikely to prevent generic entry.”
The FTC’s Legal Strategy
The case against Solvay illustrates several elements of the FTC’s current strategy in its continuing efforts to challenge patent settlements with so-called “reverse payments” (i.e., cash payments to generic companies, even where such payments are part of a “side deal”). First, having suffered significant legal setbacks in the Eleventh, Second, and Federal Circuits, the FTC has chosen to commence lawsuits in other Circuits in an attempt to obtain a more favorable precedent in another Circuit (in this case, the Ninth Circuit), and possibly obtain Supreme Court review. The inclusion of the California Attorney General in the action can probably be seen as part of a strategy to justify litigation in the Ninth Circuit. The FTC pursued a similar strategy when it commenced an action against Cephalon in the District of Columbia for an alleged reverse payment patent settlement (although that case was later transferred to the Third Circuit where private litigation was pending).
Second, it is worth noting that the FTC’s complaint contains specific allegations concerning the alleged weakness of Solvay’s patent lawsuit. These allegations are notable because in prior lawsuits and public statements the FTC has taken the position that it need not prove that the branded manufacturer’s patent was weak in order to prove that a patent settlement constituted an antitrust violation. The allegations in the Solvay complaint may illustrate some willingness (or recognition that it may be required by a court) to prove that the generic companies were likely to win the patent litigation.
Finally, it remains clear that the FTC intends to continue to challenge patent settlements with socalled “reverse payments” aggressively despite the numerous legal decisions that have been passed down in favor of defendants in such cases. With the appointment of Commissioner Leibowitz (who has publicly championed such cases) as FTC Chairman, this trend is certain to continue, even while Congress considers legislation that would ban certain of these arrangements outright.