Amici File Briefs Supporting Certiorari in K-Dur Case -- Part II

by McDonnell Boehnen Hulbert & Berghoff LLP
Contact

[author: Kevin E. Noonan]

Washington Legal FoundationJoining the parties and amici with clear interests in resolving the circuit split created by the Third Circuit opinion in the K-Dur case (In re K-Dur Antitrust Litigation), the Washington Legal Foundation, self-described as having the aim of "promot[ing] economic liberty, free enterprise, and a limited and accountable government," filed an amicus brief urging the Supreme Court to grant certiorari.

The WLF's brief opens by presenting its bona fides on the issue of reverse payment settlement agreements, specifically noting its participation as an amicus in both the Third Circuit's consideration of the K-Dur reverse payment settlement agreement as well as in the Eleventh Circuit's consideration of the same agreement in Schering-Plough Corp. v. Federal Trade Commission, 402 F.3d 1056 (Fed. Cir. 2005).  In the WLF's opinion, the Third Circuit's decision "creates an intolerable conflict" wherein an appellate circuit now exists that recognizes "substantially diminished patent rights" for patentees.  Making the only argument that may prove persuasive, the brief argues that the consequence will be to "stifle the incentives for generic drug makers to compete with brand-name drug companies" in contravention of Congress' intent in enacting both the antitrust laws and the Hatch-Waxman Act.

After an (unnecessary) explication of the background of the case and the "scope of the patent" rule adopted by three other Circuits that have considered the legality of reverse payment settlement agreements (the Second, Eleventh and Federal Circuits), the brief does highlight for the Court the fundamental presumptions behind the Third Circuit's reasoning (presumptions created by the FTC in its briefing and policy position papers cited in the Third Circuit opinion).  Specifically, this reminder is that "[t]he Third Circuit agreed with the FTC's position that 'there is no need to consider the merits of the underlying patent suit because '[a]bsent proof of other offsetting considerations, it is logical to conclude that the quid pro quo for the [reverse] payment was an agreement by the generic to defer entry beyond the date that represents an otherwise reasonable litigation compromise.''"  Regardless of the soundness vel non of this logic, the disregard for the merits of the patent infringement suit seems to beg the question of whether the agreement is anticompetitive.

The circuit split, and the FTC's avowed intention to take advantage of its success in convincing the Third Circuit to agree with its view of reverse payment settlement agreements by bringing antitrust actions preferentially in district courts in the Third Circuit, "will distort innovation in the drug industry," as well as being "grossly unfair" and "incompatible with the national procedural scheme or [] generic drug entry [] under the Hatch-Waxman Act."  The Third Circuit's "misguided decision threatens to dampen significantly the incentives that generic drug makers would otherwise have to challenge pioneer patents and compete with brand name drug companies[,] by stifling the generic drug maker' prospects for winning advantageous settlements" says the WLF's brief, making the argument that settlement, as well as prevailing in ANDA litigation, is a reasonable expectation for generic drug companies that fulfills rather than frustrates Congress' intentions under the Hatch-Waxman Act.  Thus, what would be anticompetitive would be for the Court to adopt the Third Circuit's standard (and the further expansions of this reasoning the FTC has adopted since the Third Circuit's K-Dur decision.  This case "provides the best vehicle" to resolve the issue, the brief argues, because all parties (the branded and generic companies who were parties to the reverse payment settlement agreement, the antitrust plaintiffs, drug wholesalers and retailers and consumer groups, and the FTC) that had participated had been "thoroughly represented" in the case (an argument that can and will be contrasted with the FTC's position in its certiorari petition in FTC v. Watson, "the Androgel case").

In its detailed argument in support of these general propositions, the WLF cites Supreme Court precedent for the proposition that the patent grant provides exclusive rights in order to "stimulate innovation and risk taking" for developing new technologies ("Promoting the Progress [] of the Useful Arts").  Part of these rights by statute is the right to license, or refuse to license, the patented technology.  35 U.S.C. §§ 261, 271(d)(4)-(5).  All these rights, and others in the statute, create "a statutory monopoly" the WLF reminds the Court, citing Sears, Roebuck & Co. v. Stiffel, 376 U.S. 225, 229 (1964), and Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S. 176,215 (1980).  And the brief cites Judge Richard Posner of the 7th Circuit (who, despite recent intemperate and unfounded criticisms of the patent systems certainly understands antitrust law), sitting by designation in Asahi Glass Co., Ltd. v. Pentech Pharms., Inc. for the proposition that:

A firm that has received a patent from the patent office (and not by fraud . . .), and thus enjoys the presumption of validity that attaches to an issued patent, is entitled to defend the patent's validity in court, to sue alleged infringers, and to settle with them, whatever its private doubts, unless a neutral observer would reasonably think either that the patent was almost certain to be declared invalid, or the defendants were almost certain to be found not to have infringed it, if the suit went to judgment.  It is not 'bad faith' to assert patent rights that one is not certain will be upheld in a suit foe infringement pressed to judgment and to settle the suit to avoid risking the loss of rights.  No one can be certain that he will prevail in a patent suit."

289 F. Supp. 2d 986, 992-93 (N.D. Ill 2003) (emphasis in original).  The brief also reminds the Court that it has affirmed that settlement of a patent suit is not, per se, "precluded by the [Sherman] Act," citing Standard Oil Co. v. U.S., 283 U.S. 163,171 (1931).  Support for Judge Posner's reference to "fraud" can be found in the Court's decision in Prof'l. Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993), where only if a claim [in that case, to antitrust immunity under the Noerr-Pennington doctrine] is "objectively baseless."

The brief also argues that the "scope of the patent" test employed by other circuits in assessing the legality of reverse payment settlement agreements "preserves for the holders of pharmaceutical patents all the same legal rights enjoyed by other patent holders," including of course the right to settle patent infringement litigation.  Litigation is an integral part of the Hatch-Waxman regime, the WLF argues, and part of that regime encourages "the parties to resolve their patent disputes promptly through legal action" including settlements of such suits.  The brief cites the explication of the differences between ANDA litigation and conventional patent infringement litigation set forth in the other appellate court opinions to support its argument that settlement is consistent with the Congressional aims embodied in the Hatch-Waxman Act.

The WLF argues that the Third Circuit has shifted the burden to prove precompetitive effects of reverse payment settlement agreements, rather than the burden falling on challengers of these agreements to establish that they are sufficiently anticompetitive to contravene the antitrust laws.  This amounts to per se antitrust liability in view of the Third Circuit's disregard for the "merits of the underlying [patent] litigation," the brief argues.  The patentee is thus precluded from showing that in the absence of settlement it "would likely have prevailed in enforcing its patent," which would mean that the settlement was more competitive than pursuing litigation to its conclusion.  The brief also identifies the "suspicion" inherent in the FTC's position adopted by the Third Circuit regarding payment from the branded to the generic drug maker, but reminds the Court that there will always be some "consideration" obtained by the generic drug company as an incentive to settle ("[o]therwise the defendant would have little or no reason to settle").

The brief then completes the connection between the Third Circuit's decision and the incentives created by the Hatch-Waxman Act, arguing that brand name drug makers will have less incentive to invest in research and development through a reduced ability to protect its "pioneer patents," and generic drug makers will have less incentive to challenge patents protecting brand name drugs because they will be compelled to pursue the litigation to its conclusion (and in either case monies that could otherwise be used to fuel innovation is used instead to pay litigation costs).  Adoption of the Third Circuit's presumption that reverse payment settlement agreements are anticompetitive and unlawful, requiring courts to perform a "quick look" rule of reason analysis and placing the burden on the patentee to establish the precompetitive nature of the agreement will have the result of creating "a disincentive for genetic drug makers to compete by challenging pharmaceutical patents in the first place" and "thus ultimately decrease the availability of low-cost drugs" (emphasis in opinion).  Bans on reverse payment settlement agreements will work this disincentive by precluding a "date certain" (other than the patent expiry date, which is only certain of the generic drug company does not prevail) for early generic drug entry (and any reverse payment).  The result in the case at bar, generic drug entry by several generic drug companies several years before the patent expires is itself precompetitive (rendering any decision anticompetitive that would foreclose the opportunity for such a settlement to be legal).

Finally, the brief reminds the Court of the expansive scope of the FTC's appreciation of the opportunity the Third Circuit decision has given it (and a prelude of how the FTC will pursue the parties to such agreements) by citing the Commission's amicus position in the Effexor® case (In re Effecor XR Antitrust Litigation, D.N.J. 2012).

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© McDonnell Boehnen Hulbert & Berghoff LLP | Attorney Advertising

Written by:

McDonnell Boehnen Hulbert & Berghoff LLP
Contact
more
less

McDonnell Boehnen Hulbert & Berghoff LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.