The Supreme Court’s ruling in Federal Trade Commission v. Actavis, Inc., will almost certainly have major implications for the viability of Federal Trade Commission and private suits alleging that pay-for-delay settlements are anticompetitive, and for the level of antitrust risk facing companies that enter into such settlements.
Click here to view Jeff Brennan discuss the case on PBS‘ “Nightly Business Report.”
Corporations doing business in China, based on their intellectual property (IP) rights, need to be aware of the potentially serious impact of China’s Anti-Monopoly Law and other antitrust rules. China’s Anti-Monopoly Law prohibits the holder of IP rights from abusing those rights when it has a dominant market position. Such dominance can be achieved under Chinese law with a market share as low as 10 percent. Two recent cases demonstrate the greater reliance of Chinese companies on the antitrust rules, particularly when bargaining for lower royalties and license fees.
Interdigital v. Huawei
The Shenzhen Intermediate Court recently decided that Interdigital abused its patent rights by requiring Huawei to pay “excessive” royalties for essential patents for mobile telephone technology. The license terms proposed by Interdigital to Huawei reportedly complied with the European Telecommunications Standards Institute’s policy as Fair, Reasonable and Non-Discriminatory (FRAND) terms. However, the court found that the terms of the proposed license were not a FRAND complaint, and even if the offered licenses were a FRAND compliant, the royalties to be paid by Huawei should not exceed 0.019 percent of the sale price of each Huawei product using the patents. This was significantly less than what Interdigital was prepared to accept (and reportedly less than that agreed upon in Europe for the same license). In effect, Interdigital must now give Huawei a compulsory license at the lower royalty rate as fixed by the Chinese Court. Interdigital has indicated it will appeal the decision.
While the judgment has not been published, it is reported that other findings of the Shenzhen Intermediate Court include that Interdigital had also abused its IP rights by:
Tying the licensing of essential patents to the licensing of non-essential patents
requiring that Huawei provide a grant-back of certain patent rights
Microsoft v. Guangzhou Kam Hing
Another recent IP abuse case involves Microsoft, who reported Guangzhou Kam Hing to the Chinese local authorities in 2010 for using pirated Microsoft software. This resulted in Guangzhou Kam Hing being fined by the Chinese authorities. Subsequently, Microsoft filed a complaint to a local (Nansha) court claiming damages of RMB 4.7 million and requiring that Guangzhou Kam Hing purchase a specified quantity of genuine Microsoft software at a certain price. Guangzhou Kam Hing has now brought proceedings in the Guangzhou Intermediate Court accusing Microsoft of abusing its IP rights by allegedly:
Applying quantity restrictions to reinforce its dominant position
There was also a claim of discrimination in its pricing of software licenses based on differential pricing in Hong Kong and Mainland China for the same product. It is unclear whether the claim of discriminatory pricing is being pursued. The decision in this case is still pending.
On 20 February 2013, the European Commission launched a public consultation in relation to a draft proposal for a revised block exemption for technology transfer agreements (the proposal). The Commission seeks to improve and update the current legal regime on technology licensing, with a view to encouraging competition, strengthening incentives for research and development activities and facilitating the diffusion of intellectual property.
Federal antitrust enforcement agencies are closely studying the growing activity of patent assertion entities (PAE). At a recent joint workshop sponsored by the Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ), participants from academia, industry and the legal world discussed the competitive impact of these organizations and considered whether antitrust law offers regulators any tools to grapple with potential anticompetitive activity. No new policy prescriptions emerged during the daylong session, but the agencies continue to seek comment and study this rapidly developing area.
The Supreme Court of the United States has granted the government’s petition for a writ of certiorari in FTC v. Watson Pharmaceuticals, agreeing for the first time to address the antitrust and patent law implications of so-called “pay-for-delay” or “reverse payment” patent settlement agreements between branded and generic pharmaceutical manufacturers. The Court’s ruling will likely resolve this contentious issue, which has divided the federal courts and which the Federal Trade Commission has pursued for more than a decade.
Chief Economists from the US Federal Trade Commission, the US Department of Justice and the EU Directorate General for Competition, have agreed on a set of four, non-binding suggestions that should—if followed by standard-setting organizations – increase the level of protection afforded to consumers and promote innovation.
The Federal Trade Commission (FTC) filed an amicus brief on October 9 in U.S. District Court (D.N.J.). In it, the FTC spells out its arguments why, as part of a pharmaceutical patent litigation settlement agreement, a branded company’s promise not to launch an authorized generic (AG) version of its product during the generic firm’s 180-day marketing exclusivity period is a "pay-for-delay" agreement in violation of the antitrust laws, if the agreement also contains the generic’s promise to defer its entry. The FTC argues that so-called "no-AG" agreements fail under the antitrust analysis recently articulated by the Third Circuit in the K-Dur decision, which is the subject of pending petitions for certiorari in the U.S. Supreme Court.
The complaint in the underlying case, Louisiana Wholesale Drug Co., Inc. v. GlaxoSmithKline (GSK) and Teva Pharmaceuticals, can be found here. The GSK drug at issue is Lamictal, which is used in the treatment of epilepsy, bipolar disorder and other medical conditions. The FTC does not take a position on the ultimate merits of plaintiff’s allegations against GSK and Teva.
Under the Hatch-Waxman law, the first filer of an Abbreviated New Drug Application (ANDA) – i.e., an application to launch a generic version of a branded product – qualifies in certain circumstances for 180-day generic exclusivity. This means that the FDA cannot grant final approval to any other ANDAs for the same drug during that period. Generic exclusivity is an incentive contained in Hatch-Waxman to spur generic companies to file qualified ANDAs as quickly as possible, to expedite competition to the brand from generics that do not infringe the brand’s patents. Hatch-Waxman does not prohibit the branded company from launching a generic version of its own product – i.e., an AG – during that period.
The launch of an AG creates substantial competition to the generic product and typically cuts deeply into the generic product’s revenues. The FTC contends that a branded company’s promise not to launch an AG is tantamount to a "payment" to the generic firm, because the absence of AG competition results in substantially greater revenues for the generic product during its 180-day exclusivity period. Under the FTC’s pay-for-delay theory of patent litigation settlement agreements (which the Third Circuit adopted, albeit not in a no-AG case, in K-Dur), a branded company’s no-AG promise coupled with the generic company’s promise to defer its entry is anticompetitive. The FTC argues that, absent the no-AG promise, the generic firm would either (i) settle for sooner entry to obtain those revenues, (ii) launch at risk to obtain those revenues, or (iii) continue to litigate — all of which are probabilistically better results for consumers than the agreement.
According to the FTC:
Indeed, the economic realities of no-AG commitments require that such promises be analyzed like other forms of compensation paid to generics. Practically, a no-AG commitment has the same capacity to purchase delay as a monetary payment. When a brand competes through an AG, it siphons substantial revenues from the first-filer [...]
There has been a spate of antitrust complaints to the European Commission and other antitrust authorities of late, regarding the licensing of "essential patents". In the first months of 2012 alone, the European Commission received at least five new antitrust complaints over the potentially abusive use of technology patents. These complaints are being used increasingly by alleged patent infringers as another line of defense against actions brought by patent holders in the United States and in Europe. The use of complaints in this way has vital, strategic implications for the owners of technology patent portfolios and it is a tactic that should be taken into account by plaintiffs and defendants in the on-going “patent wars”.
The Acting Assistant Attorney General Joseph Wayland delivered a speech on Friday regarding how antitrust enforcement agencies can “balance patent rights, competition and innovation in the information age.” Wayland covered familiar ground on topics ranging from the dangers of patent hold-up to the importance of patent holders’ commitments to license essential patents on F/RAND terms. He stressed that the enforcement agencies continue to closely monitor the competitive impact of patent portfolio acquisitions, particularly in the wireless industry. He also reiterated the agencies’ views about the appropriate standards for injunctive relief and the impact on competition of ITC exclusion orders to enforce standards essential patents. Wayland’s prepared remarks also offered some specific suggestions about possible additions to the intellectual property policies of standard setting organizations that would limit opportunities to exploit the ambiguities of a F/RAND licensing commitment. Suggestions included, for example, requiring patent holders’ make clear their F/RAND commitments bind both the current patent holder and subsequent purchasers of the patents. He also warned that even if patent holders are not enforcing standard-essential patents, efforts to force licensees to accept certain kinds of anti-competitive contract terms might nevertheless trigger antitrust scrutiny. Wayland said he has made it a priority to examine use or misuse of patents that goes beyond standard-essential patents.
Today the Federal Trade Commission (FTC) announced proposed changes to the Hart-Scott-Rodino (HSR) premerger notification rules that will impact the types of transactions for which pharmaceutical companies will be required to file HSR notifications with the Department of Justice and FTC. The proposed rulemaking is meant to clarify when a transfer of exclusive rights to a patent in the pharmaceutical industry results in a potentially reportable acquisition of assets under the HSR Act.
Previously — although never actually codified — the FTC would determine whether the transfer of rights to a patent (usually in the form of a license) was a reportable event under the HSR Act by focusing on whether the licensor transferred the exclusive rights to "make, use and sell" under a patent. The emphasis on the transfer of the exclusive right to manufacture would result in scenarios where parties would not be required to report the transfer of patent rights because although the licensor transferred the rights to commercialize the product, it retained the right to manufacture the product.
In an effort to place substance over form, the proposed rulemaking instead suggests an "all commercially significant rights" test, where a transfer of "the exclusive rights to a patent that allow only the recipient of the exclusive patent rights to use the patent in a particular therapeutic area (or specific indication within a therapeutic area)" would constitute a potentially reportable acquisition of assets if the size-of-transaction and size-of-person (if applicable) thresholds are met, and no exemption is applicable. The proposed rules further explain that all commercially significant rights are transferred even if the patent holder retains limited manufacturing rights to provide the licensee with product(s) covered by the patent, or co-rights to assist the licensee in developing and commercializing the product(s) covered by the patent. Please note that this rule would only apply to patents within the pharmaceutical industry (as this is the industry in which these scenarios most often occur).
The text of the proposed rulemaking can be found here. The FTC is accepting comments until October 25, 2012.
UPDATE: The U.S. Federal Trade Commission’s new proposed Hart-Scott-Rodino Act rules will apply only to transfers of pharmaceutical patent rights and are expected to increase the number of filings. Click here to read the full article, "FTC’s Proposed Rules Would Generate More HSR Filings for Transfers of Pharmaceutical Patent Rights."
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