KEI files amicus brief in pay-for-delay case; SCOTUS to resolve circuit split on legality of reverse payment settlements

On Monday, 28 January 2013, KEI filed an amicus brief to the Supreme Court of the United States in the case Federal Trade Commission v. Watson Pharmaceuticals**. The case involves a question of whether pay-for-delay settlement agreements, also known as reverse payments (where a branded pharmaceutical company will pay a generic firm to stay off the market for a certain period of time), are per se legal or whether they are presumptively anticompetitive. The brief is available for download here.

The facts of the case are as follows:

Solvay Pharmaceuticals, an Abbott company, sells a testosterone gel known as AndroGel to treat patients with low testosterone. It received a license from the Belgian company, Besin, to produce and market the product in the United States. Testosterone is off patent and the patent on AndroGel relates to the particular gel formulation. Two generic pharmaceutical companies filed applications with the FDA for approval of their generic products under the "Paragraph IV" certification of the Hatch-Waxman Act and asserted their products did not infringe on Solvay's product and that Solvay's patent on AndroGel was invalid. Under Paragraph IV of the Hatch-Waxman Act, the first generic filer can receive a 180-day marketing exclusivity where the FDA will not approve other generic versions during that time period. Solvay Pharmaceuticals brought patent infringement litigation against the generic filers, Watson Pharmaceuticals and Paddock Holding/Par Pharmaceuticals. Ultimately, the parties settled the case with Solvay agreeing to pay Watson Pharmaceuticals between $19 million and $30 million annually (based on the profits of AndroGel), and to pay Paddock Holdings $10 million a year and Par Pharmaceuticals (a Paddock affiliate) $2 million per year. The generic firms agreed to delay generic entry until 2015, five years before the end of AndroGel's patent, a date which the FTC alleges that Solvay had already planned to switch from marketing of AndroGel to a new product. The deal was portrayed as payment for marketing work and backup manufacturing capacity of Watson and Par, though the FTC alleges that Solvay had no need for such assistance and did not intend to utilize these provisions. The FTC brought suit against the parties to the pay-for-delay agreement, alleging that the settlement was anticompetitive and violated antitrust laws.

On 25 March 2013, the Supreme Court will hear oral arguments in the case and resolve a clear circuit split. While the Eleventh Circuit applied the "scope-of-the-patent" test, effectively immunizing pay-for-delay agreements from antitrust scrutiny, in an analogous case, the Third Circuit in In re K-Dur held that reverse payment agreements are presumptively anticompetitive and that the parties to the agreement bear the burden of demonstrating that such payments are for something other than delayed entry into the market or that there is a pro-competitive benefit to the agreement.

KEI's brief supports the FTC position (also supported by 31 states) that pay-for-delay agreements are presumptively anticompetitive and that the parties to the agreement bear the burden of demonstrating that the payment was for something other than delayed entry into the market or that a pro-competitive reason for the settlement exists. KEI's brief also discusses in detail the argument that proponents of immunizing pay-for-delay agreements from antitrust scrutiny have put forth that such heightened patent protection is necessary in order to induce investment in research and development of pharmaceutical drugs. The brief notes details the numerous rewards and forms of compensation available to pharmaceutical companies that fall outside the patent system, including exclusive rights over test data, orphan drug tax credits, or vouchers for accelerated review of new drugs. It also notes the role of federal funding and support of pharmaceutical research and development. In addition, KEI refutes the argument that immunization from antitrust scrutiny is necessary due to the high costs of drug development. In the opening paragraph of its opinion, the Eleventh Circuit cited the high costs of drug development at $1.3 billion, a figure that is clearly overestimated with respect to AndroGel, and suggests that strong patent protections are necessary in order to promote future research and development.

The table of contents of the argument portion of KEI's brief are reprinted below.

I. JUSTIFICATIONS FOR HEIGHTENED PATENT PROTECTION AND IMMUNIZATION FROM ANTITRUST SCRUTINY FAIL TO TAKE INTO ACCOUNT OTHER REWARDS AVAILABLE TO THE PATENT HOLDER.

II. JUSTIFICATIONS FOR HIGH PATENT PROTECTION DUE TO COST OF PHARMACEUTICAL DRUG DEVELOPMENT OFTEN RELY ON INFLATED DATA AND DO NOT PROVIDE A PERSUASIVE REASON TO IMMUNIZE PAY-FOR-DELAY FROM ANTITRUST SCRUTINY.

III. PAY-FOR DELAY SETTLEMENT AGREEMENTS IMPEDE THE INTENDED PURPOSE OF THE HATCH-WAXMAN ACT PROVISIONS DESIGNED TO PROVIDE INCENTIVES TO PROMOTE GENERIC ENTRY INTO THE MARKET.

A. The Hatch-Waxman Act Included Incentives for Generic Pharmaceutical Companies to Challenge Weak Pharmaceutical Patents Thereby Promoting Generic Competition.

B. The Eleventh Circuit Decision Immunizes Pay-For-Delay Agreements from Antitrust Scrutiny and Reduces the Likelihood of Faster Entry of Generic Medicines Into the Market, Impeding a Key Objective of the Hatch-Waxman Act.

C. The Third Circuit Rule that Pay-For-Delay is Presumptively Anticompetitive Strikes the Appropriate Balance Between Promoting Progress and Protecting the Public Interest.

**Update: 1 March 2013: On Friday, 1 March 2013, the case was recaptioned as Federal Trade Commission v. Actavis due to the combination fo Watson Pharmaceuticals and Actavis. According to SCOTUSBlog, "Actavis now claims to be the third-largest generic drug-making company in the world."**

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