17 June 2013Americas

US Supreme Court backs ‘rule-of-reason’ for pay-for-delay

A majority of the US Supreme Court has  ruled that the US Federal Trade Commission (FTC) should be able to challenge so-called ‘pay-for-delay’ patent litigation settlements on antitrust grounds.

The court reversed an 11th Circuit Court of Appeals ruling with a majority of five to three, Justice Alito having recused himself from the case.

The 11th Circuit had upheld a lower court decision that threw out the FTC’s attempt to challenge a settlement between originator company Solvay Pharmaceuticals (now Abbvie) and generics manufacturers Watson Pharmaceuticals (now Actavis), Paddock Laboratories and Par Pharmaceutical.

As part of that settlement, the generics agreed to delay their entry to the market and settle infringement and invalidity litigation over Solvay’s AndroGel branded testosterone drug in return for more than $100 million total payment, permission to bring their generic to market five years prior to the expiry of the patent (for Watson) and an undertaking to promote AndroGel to urologists.

The FTC challenged the settlement, alleging that it violated section five of The Federal Trade Commission Act, which deals with anti-competitive behaviour.

The 11th Circuit had found that the FTC had not shown anti-competitive conduct that fell outside the exclusionary scope of the original patent, and therefore there was no antitrust violation.

But in the Supreme Court’s majority opinion, Justice Breyer wrote that “reverse payment settlements such as the agreement alleged in the complaint before us can sometimes violate the antitrust laws.”

While acknowledging that the conduct didn’t necessarily fall outside the exclusionary scope of the patent, Breyer said “it would be incongruous to determine antitrust legality by measuring the settlement’s anti-competitive effects solely against patent law policy, rather than by measuring them against pro-competitive antitrust policies as well.”

He added: “[A] reverse payment, where large and unjustified, can bring with it the risk of significant anti-competitive  effects.”

The court suggested that such settlements be looked at under a “rule-of-reason” for possible antitrust issues, but stopped short of making such settlements “presumptively unlawful”, as the FTC has sought.

The case will be remanded to the 11th Circuit to be considered in light of the ruling.

Paul Bisaro, president and chief executive of Actavis, was pleased that the court stopped short of making the agreements presumptively unlawful. “The court has established that the 'rule of reason' be applied, and left it to the lower courts to determine if the benefits of the settlement outweigh harm to consumers,” he said.

“We believe this decision continues to provide for a lawful and legitimate pathway for resolving patent challenge litigation in a manner that is pro-competitive and beneficial to American consumers.  The court's ruling however, does place an additional and unnecessary administrative burden on our industry.”

Bisaro added that the company would continue to defend the settlement in question.

In a strongly worded dissenting opinion, Justice Roberts wrote that the case was “fairly straightforward.”

He said: “[A] patent holder acting within the scope of its patent does not engage in any unlawful anticompetitive behaviour; it is simply exercising the monopoly rights granted to it by the Government. Its behaviour would be unlawful only if its patent were invalid or not infringed. And the scope of the patent—i.e., what rights are conferred by the patent—should be determined by reference to patent law.”

Roberts said the majority ruling is likely to “discourage settlement” of patent litigation. “The majority today departs from the settled approach separating patent and antitrust law, weakens the protections afforded to innovators by patents, frustrates the public policy in favour of settling, and likely undermines the very policy it seeks to promote by forcing generics who step into the litigation ring to do so without the prospect of cash settlements.”

The FTC welcomed the court’s ruling. “The Supreme Court’s decision is a significant victory for American consumers, American taxpayers, and free markets,” chair Edith Ramirez said. “We look forward to moving ahead with the Actavis litigation and showing that the settlements violate antitrust law. We also are studying the court’s decision and assessing how best to protect consumers’ interests in other pay for delay cases.”

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8 December 2014   A US court has spared drug companies AstraZeneca and Ranbaxy Laboratories a potentially hefty fine after ruling that a ‘pay-for-delay’ deal between them did not violate antitrust grounds.

More on this story

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