Third Circuit Rules that Reverse Patent Payment Agreements May Violate the Sherman Act

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On Monday, in In Re: K-Dur Antitrust Litigation, No. 10-2078 (3rd Cir. July 16, 2012), the Third Circuit ruled that reverse patent payments (where a pharmaceutical product patentee pays a generic manufacturer to stay off the market for some period of time) are prima facie evidence of an antitrust violation. Under the Third Circuit’s “quick look rule of reason” standard, parties to reverse payment agreements can then rebut the evidence by showing either that the payment is pro-competitive or is for something other than delayed market entry.

The Third Circuit rejected the scope of the patent test, endorsed by courts including the Eleventh Circuit in FTC v. Watson Pharmaceuticals, Inc. (Under that test, if the settlement is even arguably within the scope of the patent, it is not subject to antitrust attack, absent sham litigation or fraud in obtaining the patent.) “The judicial preference for settlement, while generally laudable, should not displace countervailing public policy objectives or, in this case, Congress’ determination — which is evident from the structure of the Hatch-Waxman Act and the statements in the legislative record — that litigated patent challenges are necessary to protect consumers from unjustified monopolies by name-brand drug manufacturers,” the Third Circuit concluded.

The Third Circuit’s decision opens the door for possible review by the Supreme Court of a circuit split on the issue of reverse patent payments.

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