Like the European Commission, the US FTC requires agreements settling pharmaceutical patent disputes to be lodged with it. Last week it published its latest report on its findings, along with a press release summarising the current position.
Most notable in terms of new analysis is the discussion of the concept of “possible compensation”, which the FTC views as “the next frontier” of possible antitrust concerns. To quote the FTC press release directly: “Settlements are categorized as involving “possible compensation” when it is not clear from the face of the agreement whether certain provisions act as compensation from the brand to the generic company”. Examples include:
- No-third-party AG commitments: The US courts have already been grappling with promises by patentees not to launch their own authorised generic (AG). Commitments not to license a third party (or appoint a third party distributor) may have similar, or lesser effects, depending on the market context.
- Declining royalty obligations: Such provisions are often also linked to the presence on the market of an AG – the FTC’s theory is that such a provision may act as a disincentive on the patentee from launching or authorising a third party to launch a competing generic.
In EU competition law terms, such issues appear to fall more at the effects end of the spectrum, rather than being likely to be anti-competitive by object – in line with our analysis of no-AG promises in this article.
As with previous such reports in Europe and the US, the FTC notes the increasing numbers of settlements, which is said to disprove past claims about the impact of FTC policies on generic companies’ incentives to challenge patents. According to the FTC, the vast majority of the settlements lodged this year do not involve any unwarranted payment, although a minority involve “possible compensation”. In a notable admission, the FTC recognises that in the past companies may well have thought that it was permissible to settle using ‘reverse payments’. While there are doubtless a number of different reasons for the increasing numbers of settlements, not all of which depend on the antitrust position (see, for example, the discussion in our post on the 6th EU monitoring report, here), it appears that the US Supreme Court Actavis decision has indeed brought some clarity to the position under US antitrust law. Despite the declining numbers of settlements raising clear antitrust concerns, the FTC (like the EU) will continue to monitor pharma settlements. US Congress recently extended reporting requirements to biologics and biosimilars.
Turning to the report itself, a few points are notable:
- 29 of the 30 final settlements which included a restriction on generic entry also contained payment from the brand manufacturer to the generic in the form of litigation fees, with payments up to $7 million. In the EU, the position on payment of exit costs (including litigation expenses) is less clear, although there are helpful indications in the recent General Court judgments in Servier, Krka, etc, which refer to the concept of “costs inherent in the settlement” as not giving rise to an inducement which could render a settlement unlawful.
- The large majority of all final settlements reviewed involve the grant of rights to the generic going beyond those at issue in the litigation itself. Again, this is a helpful indication although it would also be useful to understand whether the generics are subject to equally broad restrictions on challenge.
- A majority of the final settlements also provide for some “accelerated entry” before the date of final patent expiry. However, the majority of such agreements are conditional upon some other event – e.g. entry of another generic, finding of patent invalidity, new FDA approval for the same active ingredient, etc. Even if the FTC is not challenging such provisions, at least one current private claim in the US involves this kind of provision in agreements between Abbvie and a number of biosimilar manufacturers in relation to Abbvie’s blockbuster Humira product (see the Complaint, brought by a welfare fund in the Northern District of Illinois here).
In Europe, we are still waiting for the highest EU court to rule on reverse payment patent settlements. However, the wait will soon be over – AG Kokott will be handing down her (non-binding) opinion in the Lundbeck case later this month, with the judgment likely to follow later in the year.