Amici File Briefs Supporting Certiorari in K-Dur Case

[author: Kevin E. Noonan]

NYIPLAJoining 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), two "public interest" groups have also filed amicus briefs urging the Supreme Court to grant certiorari.  These groups, the New York Intellectual Property Law Association (NYIPLA) and the Washington Legal Foundation, like every other brief, urge the Court to review the Third Circuit decision.  Each brief also presents supplemental questions or alternative points of view that may pique the Court's interest enough to support the certiorari grant.  The NYIPLA's brief will be discussed in this post.

The NYIPLA's brief opens by characterizing the Questions Presented by the branded (Merck) and generic (Upsher-Smith Labs) petitioners as "accurately and fairly characteriz[ing] the ultimate issue" for the Court to resolve by granting certiorari.  The brief also presents four "subsidiary questions" for the Court's consideration:

Subsidiary Question 1. Whether the Third Circuit erred in presuming, in a private Clayton Act antitrust action alleging a Sherman Act Section 1 violation, that a potential seller of generic pharmaceuticals would have entered the market "at risk" absent an earlier settlement of a Hatch-Waxman patent infringement suit which included a "reverse payment" provision;

Subsidiary Question 2. In the absence of proof that a patent infringement suit brought under the Hatch-Waxman Act was "objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits", and after an entry date for a generic manufacturer is specified in a settlement agreement that also contains a reverse payment term, whether the Third Circuit erred in determining hypothetically that some earlier alternative entry date would have represented "an otherwise logical litigation compromise" in the absence of the reverse payment term;

Subsidiary Question 3. In a private Clayton Act antitrust action alleging a Sherman Act Section 1 violation, did the Third Circuit err by applying a "quick look" rule of presumptive illegality to a complicated fact pattern presenting both patent-antitrust interface and Hatch-Waxman issues extremely similar if not identical to those presented in eight previous federal appellate court cases in which, as properly interpreted, a full-blown rule of reason inquiry was required; and

Subsidiary Question 4. Would application of the Third Circuit panel's decision interfere directly with the ability of the generic manufacturers to effectively manage their Hatch-Waxman litigation dockets and eventually frustrate the Congressional objective of maximizing patent challenges.

In addition to legal argument and citation to case law, the NYIPLA's brief provides as appendices studies (by Pricewaterhouse Cooper, GPhA and RBC Capital Markets) relating to the cost of ANDA litigation and the positive impact of generic drug substitution for branded drugs consequent to the Hatch-Waxman Act.  In addition to supporting these questions, the NYIPLA's brief addresses some of the assumptions (express and implicit) in the Third Circuit's reasoning.

The brief questions the Third Circuit panel's "implicit inference" that generic drug makers would have entered the market "at risk" in the absence of settlements that were free of the type of antitrust attack pressed by the FTC and antitrust plaintiffs.  The brief argues that there is no empirical evidence that a generic drug maker would enter the market at risk, inter alia, because any actual damages (even without consideration of the risk of treble damages from a finding of willful infringement) would likely be much greater than any profits the generic drugmaker could make from sales of generic substitutes for branded drugs.  In fact, the empirical evidence is to the contrary:  of 158 ANDA litigations that settled from 2003-2009, only 28 of the generic drugs were launched at risk (and these at-risk launches were by the largest generic drug manufacturers).  The brief also sets forth the launch of Apotex's generic Plavix drug product, which resulted in damage and pre-judgment interest award of $551 million.  And the brief argues that "delay" cannot merely be presumed, but rather that the FTC or antitrust plaintiffs must establish that there would have been a delay in the first place (which is controverted by the empirical evidences discussed above).  Nor can the FTC, antitrust plaintiffs or the Court presume (as the brief asserts the Third Circuit did) that there was a "causal nexus" between the reverse payment settlement agreement and any alleged delay.  Finally in this regard the brief argues:

The facts regarding at risk entry while Hatch-Waxman patent litigations remain unresolved are not subject to dispute.  The uncertainties of patent litigation and the asymmetric litigation and settlement economics imposed by the Hatch-Waxman Act mandate that at risk entry remains unusual and subject to risk.  Indeed, only the largest of the generic manufacturers seem willing to undertake that risk on a regular though still unusual basis.  As illustrated by the decision of Apotex to launch its generic Plavix, moreover, expensive mistakes are sometimes made.  As the magnitude of the Plavix damages indicate, a miscalculation regarding anat risk launch might well bankrupt a smaller generic manufacturer.

The brief then explicitly addresses the question of whether the Supreme Court's Professional Real Estate case is controlling.  That case set forth a two-prong test for the application of antitrust liability in patent infringement litigation:  first, that the patent infringement lawsuit must be "objectively baseless"; and second, the subjective intent of the parties was to enter into an agreement "in restraint of trade."  The brief characterizes the Third Circuit opinion as disregarding the objective prong of the test, a result that requires certiorari for correction.

The brief directly identifies the Third Circuit's decision as coming "at the behest of the enforcement agencies," an accurate characterization in view of how completely the Third Circuit panel adopted the FTC's rationales and based its decision on policy and position papers promulgated by the Commission during its decade-long attack on reverse payment settlement agreements.  The brief specifically urges the Court to rule on whether the Third Circuit's "quick look" rule of reason analysis is consistent with Supreme Court precedent.

Finally, the brief argues that the Court should consider the "unintended consequence" of applying the rule of presumptive illegality on these agreements, in view of the evidence that instead of promoting generic drug entry the rule would frustrate efforts to provide generic substitutes for branded drugs, based on "interfere[nce] with litigation resource allocation by the generic manufactures."  These arguments are presented in the context of a general argument that the Hatch-Waxman regime has been "enormous[ly] success[ful]," saving consumers almost $1 billion from 2001-2010 alone.  Contrary to the Third Circuit's assumptions, the brief argues that empirical evidence (from the 2012 Pricewaterhouse Coopers study) indicates that "the majority of ANDA litigation[] continue to end in settlement."  Adopting the Third Circuit's "presumptively illegality" standard, NYIPLA argues, would "inevitably result in loss of the litigation management and financing flexibility that is critical to the success of the generic manufacturers and, eventually, would frustrate the Congressional objective by forcing a reduction in the net number of Hatch-Waxman challenges" (and the brief notes that the FTC has acknowledged this expected outcome, citing a footnote in the Commission's 2010 study, "Pay-for- Delay: How Drug Company Pay-Offs Cost Consumers Billions."

The Washington Legal Foundation's brief will be discussed in a later post.  In the interim since these briefs were filed, however, the FTC has filed a petition for certiorari in FTC v. Watson, a case the Commission argues is better positioned for the Court's review of the question of the legality of reverse payment settlement agreements.  The Court could grant certiorari in that case and hold petitions in the K-Dur case in abeyance or could consolidate these cases for review.  In view of the Court's grant of certiorari in Bowman v. Monsanto, however (and that in the face of views of the Solicitor General that certiorari should not be granted in Bowman), it is likely that the Court will not only grant certiorari but also continue its recent penchant of deciding cases to limit the scope of patent protection.