Ending anti-competitive “pay-for-delay” settlements is a top priority at the Federal Trade Commission, according to FTC Chairwoman Edith Ramirez.   What that means for branded and generic drug makers seeking to settle their patent disputes short of all out litigation remains to be seen . . . but the early indications aren’t good.

Background

As we first wrote in our post titled “Pay For Delay and Drug Design Defect Cases Take Center Stage at Supreme Court,” the FTC campaigned for more than a decade against reverse payment settlements where branded manufacturers pay one or more generic manufacturers to drop challenges to the drug’s patent(s) and stay off the market for a period of time up to and including the expiration of the patent(s) in suit.  Testifying recently before the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, Ramirez reiterated the agency’s long-held view that these “pay-for-delay” settlement agreements “… violate the antitrust laws and undermine the goals and spirit of the Hatch-Waxman Act.”  The FTC was pleased with the Supreme Court’s ruling in FTC v. Actavis, Inc., which overturned the “scope-of-the-patent” test in favor of a case-by-case “rule of reason” approach.   Now that earlier conflicts between various circuit courts have been resolved, Ramirez warned that the FTC will proceed on a number of fronts to protect the pocketbooks of consumers and government programs like Medicare and Medicaid.

  • According to Ramirez, watch for the FTC to:
  • Move aggressively in Actavis and FTC v. Cephalon
  • File amicus briefs in private pay-for-delay litigation
  • Investigate pending matters
  • Monitor settlements under the Medicare Modernization Act of 2003 (“MMA”)
  • Draw attention to new MMA settlements through reporting actions

Even before Actavis, the FTC was monitoring branded-generic settlements closely to ensure compliance with the MMA’s Section 1112 reporting requirements.  In May, 2011, the FTC issued two advisory letters aimed at two Hatch-Waxman litigation settlements involving Sanofi and Watson Laboratories and Sanofi and Synthon — both over the patent on Sanofi’s Ambien CR® sleep drug.  It bears noting that neither of the two settlements involved a reverse payment,  but because both settlements effectively precluded the availability of generic versions of Ambien CR® following a Par IV ANDA dispute, the FTC was quick to point out that the settlement agreements should have been submitted to the FTC and DOJ pursuant to Section 1112.

Ramirez stated in her Senate testimony that the FTC also plans to review past settlements in an effort to determine if further action is warranted.  Criteria being used to evaluate the suitability of reopening cases, according to Ramirez, include the following:

  • Seriousness of the violation
  • Potential consumer harm
  • FTC ability to remedy the harm
  • Legal principles at issue
  • Potential deterrent effect of an enforcement action

Finally, in an acknowledgement of related legislation introduced by U.S. Senators Amy Klobuchar (D-MN) and Chuck Grassley (R-IA), Ramirez praised subcommittee member efforts to restrict future pay-for-delay settlements.

Observations

With billions in pharmaceutical sales are at stake, the FTC’s view of life is particularly disturbing for branded and generic manufacturers alike.   Last fiscal year saw up to 40 patent litigation settlement agreements, an increase from 28 in FY 2011, with a potential sales value of $8.3 billion.  As the FTC noted in a Report published in February, the agency has a very liberal view of what constitutes a reverse payment, noting that a settlement in which a branded company agrees not to issue/market an “authorized generic” (AG) is a form of “reverse payment.”  However, in the 19 settlements involving AGs that took place in 2012, the agency didn’t challenge a single such settlement — perhaps because it was waiting to see what the Supreme Court would do in Actavis.  Although Actavis may have fallen short of adopting the FTC’s favored “quick look” test which  had been adopted by the Third Circuit — and which presumes that all reverse payment settlements are anti-competitive agreements propping up invalid patents — the Supreme Court’s decision gave the FTC more than enough ammunition to go after past as well as future settlements.

While settlements involving real reverse payments are at greatest risk, anything of “value” from a branded manufacturer to a generic manufacturer is suspect in the FTC’s eyes.  And the risk isn’t limited to the FTC.  In an earlier blog post titled “Supreme Court Deals Blow to Reverse Payment Settlements,” we wrote:

Not only can we expect to see more antitrust class action suits from consumer and insurance payors, but what’s to stop lawyers and their clients from claiming branded and generic settlers engaged in some form of deceptive trade practice that tricked Medicaid or other state government health care programs into overpaying for branded drugs?  Nothing …

 My advice to clients and other manufacturers (both branded and generic) that find themselves on the wrong side of a reverse payment antitrust lawsuit (whether brought by the FTC or plaintiff’s lawyers) is to bring back the patent litigators, make the case for the patent’s validity (assuming a case can be made and despite how awkward it might seem for the generics), and litigate or settle from a position of strength.  Any other approach could end up being far more costly.

My advice stands.