The European Commission has invited comments as it reviews the current regime for Technology Transfer Agreements. All stakeholders that have worked with the current set of rules will have a real interest in its improvement and should find it worthwhile to take part in the consultation process. In order to be involved in the shaping of these proposals and not just in the polishing of them, it is important to submit comments ahead of the 3 February 2012 deadline.
FTC Staff Report Summarizes Recent Pay-for-Delay Settlements by James Buchanan Camden
On October 25, 2011, the Federal Trade Commission (FTC) Bureau of Competition staff released a report providing an overview of recent settlements filed with the FTC concerning patent disputes between brand and generic pharmaceutical companies. Such settlements must be filed with the FTC under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
According to the FTC staff report, 28 of the 156 final settlements filed with the FTC in fiscal year 2011 were potential reverse payment, or “pay-for-delay,” agreements in which the branded pharmaceutical company both provided some type of compensation to the generic and “restricted the generic’s ability to market its product.” The FTC has long been opposed to pay-for-delay settlements because they can delay the entry of lower-cost generics to market, thereby potentially increasing prescription drug costs for consumers.
The 28 potential pay-for-delay settlements identified by the FTC staff in FY 2011 “involved 25 different branded pharmaceutical products with combined annual U.S. sales of more than $9 billion.” Of those 28 settlements, 18 involved generics eligible for 180-day “first-filer” exclusivity, meaning these generics were the first to challenge the patent of the branded drug and were eligible for 180 days of market exclusivity for their generic equivalent. This first-filer exclusivity is provided by the Hatch-Waxman Act, passed by Congress to promote the entry of generic equivalent drugs to the market by granting market exclusivity to those companies first to challenge the patent of a branded drug. The FTC finds pay-for-delay settlements involving potential first-filers particularly troublesome because if a first-filer is delayed entry to the market, other generic manufacturers may also be blocked until the first-filer enters the market.
Notably, compensation provided to a generic as part of a settlement might not take the form of a cash payment. Of the 18 settlements in which a generic was eligible for first-filer exclusivity, 10 included either an agreement by the branded drug company not to compete with an authorized generic equivalent drug or an exclusive license for the generic company to market the authorized generic equivalent drug. An authorized generic—the branded drug manufacturer’s generic version of its own drug—can be sold during the generic first-filer’s 180-day exclusivity period because the branded drug manufacturer has already received FDA approval for its product. In such circumstances, not only does a pay-for-delay settlement delay the entry of the generic to the market, thus shielding the branded drug from competition with a lower-cost generic for the duration of the delay, but once the generic enters the market, it does not face competition from other authorized generics during the 180-day exclusivity window.
Overall, the report found that pay-for-delay settlements have been increasing in recent years, with the FTC receiving almost as many potential pay-for-delay settlements in the past two fiscal years as the total number of such agreements filed between FY 2004 and FY 2009.
Practice Note: The FTC’s distaste for pay-for-delay settlements is unlikely to abate. Indeed, the [...]
On October 31, 2011, a California state court of appeal affirmed a lower court’s ruling upholding a "reverse payment" (pay-for-delay) settlement between Bayer (Bayer) AG and Barr Pharmaceuticals (Barr). Bayer had sued Barr for patent infringement pertaining to the latter’s planned production of a generic form of Bayer’s Cipro. The case was settled with Bayer paying Barr to delay entry until the expiration of Bayer’s patent in 2004. Thereafter, consumers filed a class action lawsuit challenging the settlement agreement under California’s state antitrust laws. The appellate court upheld the settlement agreement because it concluded that the agreement did not restrain competition beyond the scope of the Bayer patents. This court’s ruling is consistent with the predominant view among the courts that these agreements do not violate the antitrust laws when the period of the delay and products at issue are within the scope of the relevant patents.
For years the Federal Trade Commission (FTC) has expressed serious concerns about reverse payment settlements. Most recently, on October 25, 2011, the FTC released the findings of its study into the prevalence of these agreements and their effects on consumers. The FTC noted that "pharmaceutical companies continued a recent anticompetitive trend of paying potential generic rivals to delay the introduction of lower-cost prescription drug alternatives for American consumers …drug companies entered into 28 potential pay-for-delay deals in FY 2011 (October 1, 2010 through September 30, 2011). The figure nearly matches last year’s record of 31 deals and is higher than any other previous year since the FTC began collecting data in 2003. Overall, the agreements reached in the latest fiscal year involved 25 different brand-name pharmaceutical products with combined annual U.S. sales of more than $9 billion." This latest report demonstrates the FTC’s continued commitment to enforcement in this area. Further, the FTC’s Chairman has continued to urge Congress to pass legislation that restricts reverse payment settlements.
These recent events highlight the need to work closely with antitrust counsel to ensure that any settlement agreements are properly vetted and take into account the latest antitrust developments.
On Wednesday, August 31, the Federal Trade Commission issued a report on "Authorized Generic Drugs: Short-Term Effects and Long-Term Impacts." In the report, the Commission indicated that it would take a hard-line approach to pay-for-delay deals in which brand-name drug makers agree to defer introduction of their own generic formulations in exchange for competitors delaying entry into the market. The report signals that the FTC pay-for-delay pharmaceutical patent settlements continue to be a "hot button" at the FTC, including deals that contain commitments by branded players to withhold generic versions of their own products.
The FTC recently hosted a workshop on preventing patent “hold-ups” in standard-setting. Panelists addressed and evaluated the three main tools currently used by SSOs to prevent patent hold-ups: patent disclosure rules, ex ante disclosure of licensing terms by patent holders, and RAND commitments. The FTC has yet to formally comment on the workshop, but may prepare a report discussing the issues raised in this project.
McDermott Will & Emery’s International News, Issue 2, 2010, covers a range of legal developments of interest to those operating internationally. This issue focuses on Antitrust and Competition.
In a unanimous decision issued on May 24, 2010, the Supreme Court of the United States clarified when participants in a joint venture may face antitrust liability for their joint activities. In American Needle, Inc. v. National Football League, Inc., et al, the Supreme Court ruled that the National Football League (NFL) and its member teams are not immune from the antitrust laws when licensing the teams’ intellectual property rights jointly through a single entity. Instead, the antitrust laws do apply and the teams’/League’s conduct must be analyzed to determine whether it can be an agreement in restraint of trade violating the antitrust laws.
The American Needle decision has broad application to joint ventures and other collaborations involving competitors across all industries. This is because the Supreme Court held that participants to a joint venture are not categorically immune from the antitrust laws even if they form one entity to conduct their joint activities. Rather, the antitrust laws will still apply and courts must apply the “rule of reason,” which requires weighing the pro- and anticompetitive effects of the joint venture’s activities to analyze whether they violate the antitrust laws.
The Supreme Court stated that the test for whether antitrust laws relating to agreements in restraint of trade applies to a joint venture’s conduct focuses on whether the conduct at issue involves separate decision makers whose joint activities would rob the marketplace of “independent centers of decision making” and, thus, actual or potential competition. To make that determination, the Supreme Court stated that courts should focus on “competitive realities” and whether the participants to the joint venture still have separate competing economic interests that are not necessarily aligned. Courts should do this even if participants have formed one entity through which they act and even if participation by competitors in the joint venture is necessary to produce a product or service. The Supreme Court stated the fact that a joint venture that undertakes some conduct for which participation by competitors is required to offer a new product or service enables it to receive rule of reason, rather than per se, analysis, but does not render it immune. The case was remanded for that rule of reason analysis.
The Supreme Court’s decision, the first decision it has granted in favor of a private antitrust plaintiff since the early 1990s, provides a timely opportunity to remind businesses to reexamine their joint ventures and other collaborations involving competitors that may subject them to risk under the antitrust laws. Companies should take a fresh look at their participation in these activities and determine whether certain modifications would reduce their risk of liability under the antitrust laws.
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