On July 16, 2012, the U.S. Court of Appeals for the Third Circuit (“Third Circuit”) issued a precedential decision in In re K-Dur Antitrust Litigation and held that reverse payment agreements between brand-name and generic drug manufacturers are presumptively unlawful restraints of trade in violation of Section 1 of the Sherman Act.
This antitrust case involves reverse payment agreements entered into between Schering-Plough Corporation and two generic drug makers involving a brand-name drug called K-Dur. The lawsuit was brought by several drug wholesalers and retailers, who argued that such agreements between the brand-name and generic drug manufacturers were anticompetitive in violation of Section 1 of the Sherman Act.
In its ruling, the Third Circuit reversed a low court’s decision and held that reverse payment agreements must be reviewed under a “quick look” rule of reason test, under which a reverse payment constitutes prima facie evidence of an unreasonable restraint of trade in violation of Section 1 of the Sherman Act, and a defendant can only rebut such presumption of illegality by showing that such reverse payment (i) has a purpose other than delaying entry of a generic drug, or (ii) offers some pro-competitive benefit.
This Third Circuit decision is particularly significant because by adopting the “quick look” rule of reason test, the Third Circuit rejected the prevailing “scope of the patent” test adopted by other federal appellate courts. Under the “scope of the patent” test, reverse payment agreements are deemed lawful as long as such agreements fall within the scope of the patent with respect to duration and products covered by the agreements. Furthermore, the Third Circuit decision created a circuit split and increased the likelihood of the U.S. Supreme Court review of the standard governing the legality of reverse payment agreements.
Last year, the Korea Fair Trade Commission (“KFTC”) issued a corrective order and imposed an administrative fine of KRW 5.1 billion against GlaxoSmithKline(“GSK”) and Dong-A Pharmaceutical(“Dong-A”) after concluding that the parties entered into anticompetitive reverse payment agreements in violation of Article 19, Section 1 of the Monopoly Regulation and Fair Trade Act. Following the KFTC decision, GSK filed an appeal with the Seoul High Court to invalidate the corrective order and administrative fine imposed by the KFTC. On October 11, 2012, the Seoul High Court dismissed such appeal of GSK and held that the parties’ agreements exceeded the scope of reasonable exercise of the patent rights and thereby unreasonably restrained competition in the relevant market (Seoul High Court Decision 2012Nu3028, rendered on October 11, 2012).
As with the U.S., the above decision by the Seoul High Court is expected to heighten the KFTC enforcement against reverse payment agreements among pharmaceutical companies in Korea. Accordingly, in order to avoid antitrust challenges by the KFTC, more careful analysis and consideration is advised when pharmaceutical companies negotiate and draft provisions of patent settlement agreements.