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


[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.

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