The Congressional Research Service (CRS) recently issued a report titled “Pharmaceutical Patent Settlements: Issues in Innovation and Competitiveness” that addresses options Congress may consider following the U.S. Supreme Court’s June 2013 ruling that the reverse-payment settlement of a pharmaceutical infringement action could violate U.S. antitrust law even if the agreement’s “anticompetitive effect falls within the scope of the exclusionary potential of the patent.” Additional information about the ruling appears in Issue 59 of this Bulletin.

The Court held that these settlements must be evaluated under the “rule of reason” approach, leaving the lower courts, according to CRS, to face “the potentially complex task of applying the rule of reason to reverse payment settlements going forward.” Reverse, or “pay-for-delay,” settlements resolve patent infringement actions brought by brand-name pharmaceutical companies against their generic competitors. Often, they call on the generic firm to refrain from challenging the brand-name patent and from selling the generic version of the patented drug for a period of time in exchange for payments from the patent owner.

The report notes that Congress could await further judicial developments or regulate reverse-payment settlements “in some manner.” Several bills pending before the 113th Congress approach the issue by either establishing a presumption of legality or illegality under the antitrust laws or revising food and drug laws to reduce the incentives for generic firms to settle with brand-name manufacturers. Acknowledging the significance of the issue to the U.S. public health system, CRS opines, “When concluded in a manner that comports with antitrust principles, such settlements may further the public policy goals of encouraging the labors that lead to medical innovation, but also distributing the fruits of those labors to consumers.”

Meanwhile, the U.S. Senate recently held a hearing on a proposal sponsored by Sens. Amy Klobuchar (D-Minn.) and Charles Grassley (R-Iowa) that would make “pay-for-delay” deals illegal unless the parties can prove that they are not anticompetitive. Klobuchar claims that the agreements lead to consumers paying higher prices for drugs, and the Congressional Budget Office has reportedly estimated that the pending legislation would save the government some $4.7 billion over 10 years by allowing lower-priced generic drugs to enter the marketplace more quickly. Opponents contend that the agreements do not extend the amount of time a patent provides exclusivity. Sen. Mike Lee (R-Utah) reportedly commented that “[m]ost of the time they end up shortening the term of the patents by allowing generic manufacturers to enter the market before the patent has expired.”

According to Federal Trade Commission (FTC) Chair Edith Ramirez, who testified during the hearing, the commission is planning aggressive attacks on “pay-for-delay” settlements in response to the U.S. Supreme Court’s ruling, which, in the agency’s view, strengthened the agency’s hand. She reportedly urged the Senate to pass the proposed bill and place the burden on drug companies to prove that the agreements are not anticompetitive. Ramirez said, “While the rule of reason standard is an appropriate test and we intend to apply that going forward, I do believe declaring them presumptively invalid would also further help us put a stop to these types of settlements.” The U.S. Supreme Court rejected FTC’s per se invalid approach. See Businessweek.com and BLT: The Blog of Legal- Times, July 23, 2013.