Eleventh Circuit Rejects FTC Challenge to Reverse Payment Settlement

by Morgan Lewis
Contact

[authors: Sean P. Duffy, Scott A. Stempel, J. Clayton Everett, Jr., and Steven A. Reed]

Decision by court of appeals affirms that settlements that do not expand the exclusionary scope of a patent are not subject to antitrust challenge.

On April 25, the U.S. Court of Appeals for the Eleventh Circuit affirmed a lower court's dismissal of the Federal Trade Commission's (FTC's) challenge to a patent settlement agreement between Solvay Pharmaceuticals and three generic competitors. The decision in Federal Trade Commission v. Watson Pharmaceuticals, Inc. et al. is the latest in a series of defeats for the FTC involving challenges to so-called "reverse payment settlements" or "pay-for-delay settlements" in the pharmaceutical industry. In a strongly worded opinion, the Eleventh Circuit rejected the FTC's contention that it was necessary to determine Solvay's likelihood of prevailing in the underlying patent litigation in order to assess the legality of its settlement agreement under the FTC Act. The court instead held that, with a few narrow exceptions, settlements that do not expand the exclusionary scope of the original patent grant—i.e., are within the "scope of the patent"—are not subject to antitrust challenge even if some consideration is paid to the alleged patent infringer as part of the settlement agreement.

Background

Patent litigation between innovator pharmaceutical manufacturers and potential generic competitors often ends in settlements in which the generic companies receive a license to sell their product before the applicable patents expire, but not immediately. The FTC has long taken the view that such settlements delay generic entry and are illegal agreements among competitors not to compete. It has mounted a number of challenges to settlements in which the generic companies received a cash payment or something else of value (e.g., a supply agreement) as part of the settlement—a practice the FTC has labeled "pay for delay."

The dispute underlying Watson Pharmaceuticals revolves around AndroGel, a patented topical treatment for low testosterone. Solvay received approval from the U.S. Food and Drug Administration (FDA) for AndroGel in 2000. In May 2003, Watson Pharmaceuticals and Paddock Laboratories sought approval from the FDA to manufacture, market, and sell generic versions of AndroGel. Solvay responded by filing a lawsuit for patent infringement, which was litigated for more than a year. The parties entered into settlement agreements resolving the patent claims on September 13, 2006.

Under the terms of the settlement agreements, Watson, Paddock, and Par Pharmaceutical Companies each agreed not to market generic versions of AndroGel until August 31, 2015, unless another manufacturer launched a generic version before then. Watson also agreed to promote Solvay's branded AndroGel to urologists. Par agreed to promote branded AndroGel to primary care doctors and serve as a backup manufacturer for branded AndroGel, although it assigned its manufacturing obligations under the agreement to Paddock. Solvay agreed to share its AndroGel profits with Watson through September 2015, with Watson's share amounting to an estimated $19 to $30 million per year. Par and Paddock received $10 million per year for six years to split between them and an additional $2 million per year to provide backup manufacturing assistance.

FTC Challenge

The FTC challenged the settlement under Section 5 of the FTC Act, which "prohibits unfair or deceptive acts or practices in or affecting commerce." Unlike prior reverse payment settlement cases, in which the FTC has proposed treating the settlements as per se illegal, the FTC argued that the AndroGel settlements were anticompetitive because Solvay was unlikely to prevail in the patent infringement case and, therefore, the generic companies would have been able to begin selling their competing formulations before 2015. The FTC based its legal theory on the Eleventh Circuit's statement in Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005), that courts "need to evaluate the strength of the patent" in assessing the legality of a reverse payment settlement.

Eleventh Circuit Decision

The Eleventh Circuit rejected the FTC's position and held that courts need not undertake an evaluation of the merits of the infringement claim in determining whether a "reverse payment settlement" exceeds the exclusionary scope of the underlying patents. The court characterized the FTC's approach as unworkable, likely to discourage settlements, and likely to lead to courts "deciding a patent case within an antitrust case about the settlement of the patent case, a turducken task."

The Eleventh Circuit unanimously affirmed its prior holdings in Valley Drug Co. v. Geneva Pharmaceuticals, Inc., 344 F.3d 1294 (11th Cir. 2003), and Schering-Plough that "absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusion potential of the patent." At least in the Eleventh Circuit, patent settlements are presumptively legal under the antitrust laws as long as the resulting period of exclusion is narrower in breadth and/or shorter in duration than that granted by the presumptively legitimate patents.

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.

© Morgan Lewis | Attorney Advertising

Written by:

Morgan Lewis
Contact
more
less

Morgan Lewis 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.
Custom Email Digest
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.