GPhA Files Amicus Brief in K-Dur Case

[author: Kevin E. Noonan]

Generic  Pharmaceutical Association (GPhA)The Generic Pharmaceutical Association (GPhA) filed an amicus brief in support of a grant of certiorari by the Supreme Court in the K-Dur case (In re K-Dur Antitrust Litigation).  Characterizing the issue as being "profoundly important to the pharmaceutical market and pharmaceutical companies," GPhA argues that "[t]he decision of the court of appeals directly threatens the ability of the generic pharmaceutical industry to ensure consumers affordable access to lifesaving and health-preserving medicines."  The Third Circuit's opinion was "novel and deeply disruptive," because "[c]onsumers benefit from early, definite resolution of Para. IV litigation" and such settlements have "brought enormous benefits to consumers by speeding the entry of generic drugs to the market."

GPhA's brief points out that "up to now," all circuit courts of appeal had agreed that reverse payment settlement agreements were lawful and "did not violate the antitrust laws, so long as the agreement did not restrain trade beyond the scope of the patent itself."  The Third Circuit, "[d]isagreeing with every other circuit to reach the question," held these agreements presumptively illegal as an antitrust violation, even when the agreement permits "the generic to enter the market before the brand-name company's patent expires and even when the agreement does not restrain trade beyond the scope of the patent."  Accordingly, the Supreme Court should rectify this situation; otherwise, settlements of ANDA litigation shall be inhibited and "an agreement that benefits consumers -- by providing them with earlier access to low-priced generic drugs than the brand-name patents would allow -- into a basis for treble damages liability under the antitrust laws."  The brief points out the paradox that left to stand, the Third Circuit's decision "will inevitably delay the entry of new generic drugs into the marketplace, with potentially devastating costs to consumers and the Nation.

Speaking on behalf of its membership, GPhA's brief contends that the "uncertain legal regime" will extend to "a host of business and litigation decisions that other circuits deem permissible," including not only "nationwide class actions" but also enforcement actions by the FTC (the brief notes that the Commission "has already vowed" to bring such actions").  This will "chill" efforts by generic drug companies that promote competition by bringing "cost-saving generic medicines to market."  Consequently, GPhA argues that the uncertainties created by the Third Circuit's decision must be resolved by the Court to permit new generic drug applications to be filed; unlike arguments that focus on the investment by the branded drug companies, GPhA argues that litigation costs are a significant contributor to the calculus of whether a generic drug company develops a generic version of a branded drug.  Uncertainty about the "legal regime" that governs ANDA litigation, particularly when it limits the ability to settle, will result in "fewer generic drug applications that would trigger a patent challenge will be filed," GPhA argues in its brief.  In view of the Third Circuit's decision, "a settlement of litigation that is permissible in several circuits may nonetheless lead to antitrust liability in the Third Circuit" and that uncertainty "will inevitably deter generic drug manufacturers from challenging patents to accelerate the entry of their products."  And this situation is not limited to the Third Circuit, because the antitrust laws permit an action to be filed "in any judicial district in the country" and plaintiffs can be expected to flock to district courts in that circuit.  In this regard GPhA makes the paradoxical argument that the K-Dur decision "gave insufficient weight to the patent rights at stake:  a patentee does not violate the antitrust laws by exercising its patent rights, whether by bringing a patent-infringement suit or by settling one."  And GPhA reminds the Court that the reverse payment settlement agreement at issue in the decision "has already been reviewed by two different courts of appeals, with extensive participation by the federal government as both a party and as amicus curiae" with decisions against (Third Circuit) and in favor (Eleventh Circuit) the permissibility of the agreement under the antitrust laws.  Accordingly:

This Court should not leave the national pharmaceutical market to be governed by the minority view of a single Third Circuit panel; it should step in now to resolve this crucially important conflict.

The brief accentuates the importance of the issues in this case to the pharmaceutical industry, branded and generic alike.  The Third Circuit's decision puts at risk a "multi-billion-dollar" industry based on a "minority rule" from this Circuit.  The brief supports the importance of the Court granting certiorari and (presumptively) overturning the Third Circuit's decision by recounting (at length) the cost savings generic drugs provide to the public and the provisions of the Hatch-Waxman Act that impose litigation costs prior to market entry (which, presumably, would otherwise provide profits to fund ANDA litigation), saying that "[t]he ability to litigate is the ["extremely high"] price of admission" to the marketplace.  While acknowledging that Hatch-Waxman provides for ANDA litigation, "nothing in either the Hatch-Waxman Act or the antitrust laws mandates that every single patent lawsuit under Paragraph IV must be fought to the bitter end."  The brief reminds the Court (as have the parties and other amici) that settlement is "generally permissible" in antitrust litigation, citing Standard Oil Co. (Ind.) v. United States, 283 U.S. 163, 171 (1931).  And the brief notes that the Hatch-Waxman Act specifically provides for FDA approval of a generic company's ANDA upon settlement (21 U.S.C.§ 355(j)(5)(B)(iii)(I),(II)).  Indeed, the Act itself does not distinguish between judgment and settlement as ways to terminate ANDA litigation, and Congress did not require branded and generic companies to "litigate to the death" (a requirement that would provide the branded drug company with an advantage because branded companies, not generics, are making profits in the marketplace that can be used to fund ANDA litigation).  Settlements benefit consumers, GPhA argues, because ANDA litigation provides the "chief obstacle[]" to market entry of generic drugs.  Thus, "settlements are a key way of overcoming those obstacles and bringing cheaper pharmaceuticals to market sooner [including "earlier or better access to the market"]" which is the reason for the ANDA provisions of the Act.

The brief also maintains that its arguments are supported by actual industry experience over the "past several years," where "hundreds of patent settlements" have "brought a low-cost generic drug into the marketplace sooner than the brand-name drug's patent would have permitted" (impliedly contrasting these actual data with the economic hypotheses promulgated by the FTC).  Examples include Lipitor® and tamoxifen, noting that Barr was able to bring a generic version of tamoxifen to market nine years before patent expiry while three other generic companies failed to prevail in separate ANDA litigation.  "If Barr had instead litigated to final judgment and lost as the other companies did, the brand-name manufacturer would have faced no generic competition for nine more years," the brief notes.  And even ignoring these benefits, GPhA argues that the money not spent on ANDA litigation can be (better) spent "developing and bringing to market a new generic drug" and conversely that limiting settlements consigns these monies to litigation at the expense of new generic drug development.

The brief also (expressly) echoes party (and generic company) Upsher's brief regarding the extent and nature of the circuit split created by the Third Circuit's decision, extending to a disagreement over exactly the same settlement agreement previously found lawful by the Eleventh Circuit.  In addition, the brief notes the overlap between plaintiffs, defendants, agreements and amici (including the FTC) in these several disputes.  While circumstances in earlier cases may have not support certiorari, "the case for [the] Court's review has become incontrovertible," the brief argues.  And should the Court delay in deciding to resolve these disparate legal standards, GPhA asserts that the only consequence would be "gamesmanship and forum shopping" (in some instances by the FTC itself).  Given the concentration of pharmaceutical companies in the Third Circuit, the K-Dur decision affects the "epicenter of Paragraph IV litigation" and (for that reason alone) merits review, according to the brief.  The likelihood for such a concentration of antitrust challenges to ANDA litigation reverse payment settlement agreements is not merely a prediction but relies on statements from the FTC Chairman Jon Leibowitz that the Commission intends to file challenges to reverse payment settlement agreements in district courts in the Third Circuit "for years to come."  "Percolation" of the issue, to the extent it might otherwise occur, "may well have come to an end" in view of the Third Circuit's decision.

Getting to the heart of the matter, the brief ends with an argument that the Third Circuit's decision was simply wrong:

Patents restrict competition for a specified time, but they are not unlawful restraints of trade.  Rather, they represent a determination by Congress that the incentive to innovate justifies granting "Inventors the exclusive Right to their . . . Discoveries" for a "limited Time[]."  U.S. Const. art. I, § 8, cl. 8.  The court of appeals concluded that the rule of law applied in its sister circuits must be wrong because no antitrust plaintiff has yet prevailed under it.  See Pet. App. 32a-33a ("[N]o court applying the scope of the patent test has ever permitted a reverse payment antitrust case to go to trial.").  But the reason why plaintiffs do not prevail under that rule is simply that they have not stated an unlawful restraint on competition:  a patentee has a statutory right to exclude its competitors from the market, or to license its patent to competitors if it wishes.  Where, as here, the agreement does not restrain any trade beyond the scope of the patent, there simply cannot be an antitrust violation.

In a statement released to the press, Ralph G. Neas, President and CEO of the GPhA said:

Simply put, the Third Circuit erred in its conclusion that the presumption of validity of a patent is not a substantive right of the patent holder.  All other circuits that have ruled have held that patent settlements are presumptively valid.  The Third Circuit ruling is an outlier.

This case could determine how an entire industry does business, because it would dramatically affect the economics of each decision to introduce a new generic drug.  The current industry paradigm of challenging patents on branded drugs in order to bring new generics to market as soon as possible has produced $1.06 trillion in savings over the past 10 years.

The facts are clear.  Patent settlements save.  They are pro competition, pro-consumer and have saved consumers and taxpayers billions of dollars.

For additional information regarding this topic, please see:

• "Bayer Files Amicus Brief in K-Dur Case," September 27, 2012
• "PhRMA Files Amicus Brief in K-Dur Case," September 26, 2012
• "Generic Defendant Petitions for Certiorari in K-Dur Litigation," September 16, 2012
• "Merck Asks Supreme Court to Review Third Circuit K–Dur Decision," August 28, 2012
• "The Federal Trade Commission Finally Wins One," July 18, 2012