Title: Practicing Law Institute 43rd Annual Advanced Antitrust Seminar New York, NY February 2, 2004
1Intellectual Property Owners Association Annual
Meeting September 12, 2005 Avoiding Pitfalls in
Settling Pharmaceutical Patent Disputes Antitrus
t Concerns M. Howard Morse Drinker Biddle
Reath LLP Washington, D.C.
2The Enforcers Perspective
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3The FTCs Settlement Cases
- Interim Settlements
- Abbott/Geneva Hytrin/Terazosin (2000)
Hoechst/Andrx Cardizem (2001) - Interim settlement agreement by generic not
to enter pending conclusion of litigation - Agreement not to relinquish 180-day exclusivity
created bottleneck or cork in the bottle
preventing entry by other potential entrants - Agreement not to market a non-infringing product
- Reverse payment or payment in the wrong
direction by patent holder to alleged infringer
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4The FTCs Settlement Cases
- Permanent Settlements
- Bristol-Myers Squibb Buspar (2003)
- Permanent settlement with payment to generic
in exchange for agreement not to enter until the
patent expired - Schering Plough/Upsher Smith/AHP K-Dur
potassium chloride (2003) - Permanent settlement split patent life, entry
before patent expiration - Side payment deemed payment for delay rather
than for licensed products, not necessary to
review underlying patent merits - AHP settled ALJ decision for S-P, reversed by
Commission - FTC order prohibits payment of anything of value
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5The Court Decisions
- In re Cardizem CD Antitrust Litig. (6th Cir.
2003), cert. denied sub nom. Andrx Pharms. v.
Kroger (2004). per se illegal - Valley Drug v. Geneva Pharms. (11th Cir. 2003),
cert. denied sub nom. Walgreen v. Abbott Labs.
(2004) rule of reason - On remand, In re Terazosin Hydrochloride
Antitrust Litig. (S.D. Fla. 2005), held patent
likely not valid, agreement exceeded exclusionary
potential of patent - Opposing cert., SG acknowledged tension,
characterized Cardizem as limited to restraint on
marketing non-infringing or potentially
non-infringing versions of drug, noted subsequent
changes to Hatch-Waxman - Other district court decisions
- In re Tamoxifen Citrate Antitrust Litig.
(E.D.N.Y. 2003) - In re Ciprofloxacin Antitrust Litig. (E.D.N.Y.
2003 / 2005) - Asahi Glass v. Pentech Pharms. (N.D. Ill. 2003)
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6The Latest Word
- Schering Plough v. FTC (11th Cir. 2005)
- FTC relied on the untenable supposition that
without a payment there would have been a
settlement with earlier entry - Although the exclusionary power of a patent may
seem incongruous with the goals of antitrust law,
a delicate balance must be drawn between the two
regulatory schemes. Application of antitrust
law to markets affected by the exclusionary
statutes set forth in patent law cannot discount
the rights of the patent holder - The proper analysis now turns to whether the
challenged agreements restrict competition beyond
the exclusionary effects of the patent
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7FTC Petition for Cert. (Filed Aug. 29, 2005)
- Questions Presented
- (1) Whether an agreement between a pharmaceutical
patent holder and a would-be generic competitor,
in which the patent holder makes a substantial
payment to the challenger for the purpose of
delaying the challengers entry into the market,
is an unreasonable restraint of trade - (2) Whether the court of appeals grossly
misapplied the pertinent substantial evidence
standard of review, by summarily rejecting the
extensive factual findings of an expert federal
agency regarding matters within its purview
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8Market Definition
- Schering Plough/Upsher Smith (2003)
- ALJ found all oral potassium supplement market,
rejected alleged 20 mEq extended release
potassium chloride supplement market - FTC reasoned that first generics typically enter
at a 25 discount and pioneer drugs sales
rapidly erode, making market definition
unnecessary - In most antitrust cases, market definition is
critical - If a patented product competes with other
therapeutic equivalents and their generics, then
settlement should present no competitive concern - Can shortcut where an observer with even a
rudimentary understanding of economics would
conclude the arrangement is anticompetitive or
the rule of reason can be applied in the
twinkling of an eye
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9Noerr Pennington
- Judicial review of a settlement agreement may
immunize it from antitrust enforcement - Former FTC Commissioner Sheila Anthony (2000)
- Finally, and perhaps most importantly, there
was no judicial review of this agreement. A
judge's review, which among other things, takes
the public interest and likelihood of success on
the merits into account, distinguishes this
private agreement... - MedImmune v. Genentech (C.D. Cal. 2003)
- Resolution of priority dispute protected by
Noerr-Pennington, where court approved
settlement, not a mere stamp of approval - Some argue further that settlements should be
immune as ancillary to litigation, if not sham
litigation
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10Notification of Agreements
- Medicare Prescription Drug, Improvement and
Modernization Act Title XI, Section 1112-1115 - requires notification to FTC DOJ
- agreements between brand name manufacturers and
generic applicants (with par. IV certification) - regarding manufacture, marketing or sale of brand
name or generic or 180-day day exclusivity - agreements between generic applicants (with par.
IV certification) - regarding the 180-day exclusivity period
- within 10 days after execution and before
commercial marketing of generic drug - subject to 11,000 per day penalty
- .
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11Agreements Notified During FY 2004
22 Agreements Filed
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19
Generic-Generic Agreements
Brand-Generic Agreements
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14
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Interim Settlements of Brand-Generic patent
litigation
Final Settlements of Brand-Generic Patent
litigation
Miscellaneous Brand-Generic Agreements
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12Breakdown of Final Settlementsby Entry
Restrictions
14 Brand-Generic Agreements Filed
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5
No Restriction on Entry
Restricted Entry
1
5
3
3
2
Entry at Patent Expiration
Entry Before Patent Expiration
Brand Supplies Generic
Entry upon FDA Approval
Generic on Market Before Settlement
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13Breakdown of Final Settlementsby Type of Payment
14 Brand-Generic Agreements Filed
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5
No Restriction on Entry
Restricted Entry
3
2
4
4
1
No Payment
Royalty to the Brand
Payment to the Generic
No Payment
Royalty to the Brand
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14Practical Considerations
- Do you want to trade antitrust litigation for
patent litigation? - Risk of action by FTC, disadvantaged competitor,
direct/indirect purchasers - Who picks forum?
- FTC Red Flags
- Payments from patent holder to alleged infringer
- Restrictions on generic entry with non-infringing
product - Restrictions on generics ability to relinquish
180-day exclusivity - FTC Safe Harbor
- Compromise time of entry without payment to
infringer / anything of value - Payment of less than 2 million or expected
litigation costs - Royalties (what about sole license, supply
agreement?) - What would happen in absence of agreement?
- Timing of likely entry, impact on other entrants
- Efficiencies avoiding litigation, payment to
cash-starved generic
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1515
16M. Howard Morse Drinker Biddle Reath LLP 1500 K
Street, N.W. Washington, D.C. 20005 202-842-8883 h
oward.morse_at_dbr.com
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