By
Kevin E. Noonan —

Presumptions
(rebuttable or otherwise) are, intentionally, distortions in the law that have
the effect of increasing the difficulty of proving a proposition.  Their purpose is typically policy-motivated,
to indicate a favored outcome that will not prevail only if the basis of the
presumption (and the policy behind it) is not satisfied.  The statutory presumption of patent validity,
codified at 35 U.S.C. § 282, is an example,
reflecting the policy that patent examination should be assumed to be properly
performed and that courts should defer to agency expertise unless (and until)
an accused infringer can show by clear and convincing evidence that the agency
has granted the patent in error.

Presumptions
are at the core of the Kohl-Grassley bill (S. 27) aimed at preventing reverse
payment settlement agreements in ANDA litigation under the Hatch-Waxman Act (35
U.S.C. § 271(e)(2)).  Although the bill is unlikely to be passed in
this Congress (and may become moot depending on how the Supreme Court rules if
it grants certiorari in the K-Dur case, In
re K-Dur Antitrust Litigation), its provisions illustrate how a presumption
of illegality could be used to influence the use of these provisions for
settling litigation between branded drug makers and generic drug companies.  Relevant provisions of the bill are as
follows:

SEC. 28. PRESERVING ACCESS TO AFFORDABLE
GENERICS.

(a) In General-

(1) ENFORCEMENT PROCEEDING- The Federal Trade Commission may
initiate a proceeding to enforce the provisions of this section against the parties
to any agreement resolving or settling, on a final or interim basis, a patent
infringement claim, in connection with the sale of a drug product.

(2) PRESUMPTION-

(A) IN GENERAL- Subject to subparagraph (B), in such a
proceeding, an agreement shall be presumed to have anticompetitive effects and
be unlawful if–

(i) an ANDA filer receives anything
of value; and

(ii) the ANDA filer agrees to limit or forego research,
development, manufacturing, marketing, or sales of the ANDA product for any period of time.

(B) EXCEPTION- The presumption in subparagraph (A) shall not
apply if the parties to such agreement demonstrate by clear and convincing evidence that the procompetitive benefits of
the agreement outweigh the anticompetitive effects of the agreement.

(b) Competitive Factors- In
determining whether the settling parties have met their burden under subsection
(a)(2)(B), the fact finder shall consider–

(1) the length of time remaining until the end of the life of
the relevant patent, compared with the agreed upon entry date for the ANDA
product;

(2) the value to consumers
of the competition from the ANDA product allowed under the agreement;

(3) the form and amount of consideration received by the ANDA
filer in the agreement resolving or settling the patent infringement claim;

(4) the revenue the ANDA filer would have received by winning the patent litigation;

(5) the reduction in the NDA holder's revenues if it had lost the patent litigation;

(6) the time period between the date of the agreement conveying value
to the ANDA filer and the date of the settlement of the patent infringement
claim; and

(7) any other factor
that the fact finder, in its discretion,
deems relevant to its determination of competitive effects under this
subsection.

(c) Limitations- In determining whether the settling parties
have met their burden under subsection (a)(2)(B), the fact finder shall not
presume–

(1) that entry would not have occurred until the expiration of the relevant patent or statutory exclusivity;
or

(2) that the agreement's provision for entry of the ANDA product
prior to the expiration of the relevant patent or statutory exclusivity means
that the agreement is pro-competitive, although such evidence may be relevant
to the fact finder's determination under this section.

(d) Exclusions- Nothing in this section shall prohibit a
resolution or settlement of a patent infringement claim in which the
consideration granted by the NDA holder to the ANDA filer as part of the
resolution or settlement includes only
one or more of the following:

(1) The right to market the ANDA product in the United States
prior to the expiration of–

(A)
any patent that is the basis for the patent infringement claim; or

(B) any patent right or other statutory exclusivity that would
prevent the marketing of such drug.

(2) A payment for reasonable
litigation expenses not to exceed $7,500,000.

(3) A covenant not to sue
on any claim that the ANDA product infringes a United States patent.

While preferable to per se illegality (the position the
Federal Trade Commission has taken in more than a dozen challenges to reverse
payment settlement agreements over the past decade; see, for example, "Reverse Payments in Generic Drug Settlements"), the emphasized portions of the bill accentuate the policy
presumptions underlying the proposal.  The assumptions behind the proposed proscription on such settlements are
set forth in Section 2 of the bill, entitled "CONGRESSIONAL FINDINGS AND DECLARATION OF PURPOSES":

(6)(A) In recent
years, the intent of the 1984 [Hatch-Waxman] Act has been subverted by certain
settlement agreements between brand companies and their potential generic
competitors that make 'reverse payments' which are payments by the brand
company to the generic company.

(B) These settlement agreements have unduly delayed the
marketing of low-cost generic drugs contrary to free competition, the interests
of consumers, and the principles underlying antitrust law.

(C) Because of the price disparity between brand name and
generic drugs, such agreements are more profitable for both the brand and
generic manufacturers than competition, and will become increasingly common
unless prohibited.

(D) These agreements result in
consumers losing the benefits that the 1984 Act was intended to provide.

At
root, of course, is the assumption (that the FTC has expressly argued in suits
against the parties engaged in reverse payment settlement agreements) that the
patents involved are invalid or unenforceable and thus the agreement is a sham
that permits such "bad" patents from being invalidated to the benefit
of the parties and the detriment of consumers.  The Commission, consumer plaintiffs, and amici discount the likelihood that a second, or third, or
subsequent ANDA filer will be motivated to challenge objectively "bad"
patents, responding (as one jurist colorfully characterized the situation) to
the "blood in the water" generated by an ANDA attack on an Orange
Book listed patent.  Federal Trade
Commission v. Watson Pharmaceuticals, Inc.
(11th Cir. 2012).  These groups also ignore the realities of a
generic attack on a branded drug makers patents and the business calculus that
explains the drive to settlement in these cases:

A party likely to win might not want to play the odds for the same
reason that one likely to survive a game of Russian roulette might not want to
take a turn.  With four chambers of a seven-chamber revolver unloaded, a
party pulling the trigger is likely (57% to 43%) to survive, but the
undertaking is still one that can lead to undertaking.

Id.  And, citing In re Ciprofloxacin Hydrochloride Antitrust Litig.,
261 F. Supp. 2d 188, 208 (E.D.N.Y. 2003):

No matter how valid a patent is — no matter how often it has been
upheld in other litigation or successfully reexamined — it is still a gamble
to place a technology case in the hands of a lay judge or jury.  Even the
confident patent owner knows that the chances of prevailing in patent
litigation rarely exceed seventy percent.  Thus, there are risks involved
even in that rare case with great prospects.

However,
there is another presumption at work in many of the district and appellate
court opinions that have upheld these agreements, and that is the presumption
of patent validity.  While many decisions
upholding reverse payment settlement agreements are based on the "strength
of the patent" test rejected by the Third Circuit in the K-Dur case
(including Valley Drug Co. v.
Geneva Pharmaceuticals, Inc., 344 F.3d 1294 (11th Cir. 2003); Schering-Plough Corp.
v. Federal Trade Commission, 402 F.3d 1056
(11th Cir. 2005); In re Tamoxifen Citrate
Antitrust Litigation, 466 F.3d 187
(2d Cir. 2006), Arkansas Carpenters
Health & Welfare Fund v. Bayer AG,
604 F.3d 98, 105 (2d Cir. 2010); and In re Ciprofloxacin
Hydrochloride Antitrust Litigation, 544
F.3d 1323 (Fed. Cir. 2008)), the presumption of patent validity is an express
or implied basis for permitting branded drug makers to exclude generic
challengers from the marketplace (provided the patents are not misused by
exceeding their lawful scope).

Perhaps
one way to address these agreements clearly would be to remove presumptions of
both types.  Reverse payment settlement
agreements in ANDA litigation are already subject to FTC review under
the Medicare Prescription Drug, Improvement and Modernization Act of 2003.  Instead of placing the patent or antitrust
thumb on the policy scale, these agreements may best be subject to unbiased
scrutiny asking a simple question:  is
the result anticompetitive?  This
question would involve an assessment of many of the considerations contained in
S. 27, including whether the generic drug will enter the marketplace prior to
the expiration of Orange Book patents, the type of consideration flowing from
the branded drug maker to the generic challenger, the number of other
competitors filing ANDA and Paragraph IV challenges (including whether the
branded drug maker has entered into multiple reverse payment settlement
agreements) and the strength of the challenge(s) mounted under Paragraph
IV.  This would not be a relitigation of
patent validity or unenforceability but rather administrative agency review of the
totality of the circumstances including the "strength of the patent."  In the absence of presumptions, the agency having responsibility for protecting
the consumer from unjustified anticompetitive activity could discharge its
statutory authority, subject to judicial review.  However, any such review should be
accompanied by some sort of statute of repose for the parties, preventing
continual relitigation of the antitrust issues by other plaintiffs in other
fora.  Provided that the FTC itself
applies these principles in an unbiased fashion and not as a consumer advocate
(despite recent efforts and pronouncements that make that agencies capacity for
objectivity severely suspect; see "FTC Disapproves of 'Pay-for-Delay' Drug
Deals"),
whether the agreements pose actual harm to the public can provide the only
justified grounds for preventing private parties from resolving litigation in a
way that best satisfies their interests while safeguarding the public's
interest in lower drug costs.