By Kevin E. Noonan —

The Generic Pharmaceutical
Association (GPhA) filed
an amicus brief in support of a grant of certiorari by the
Supreme Court in the K-Dur case (In re K-Dur Antitrust
Litigation).  Characterizing the issue as being
"profoundly important to the pharmaceutical market and pharmaceutical
companies," GPhA argues that "[t]he
decision of the court of appeals directly threatens the ability of the generic
pharmaceutical industry to ensure consumers affordable access to lifesaving and
health-preserving medicines."  The
Third Circuit's opinion was "novel and deeply disruptive," because "[c]onsumers benefit from
early, definite resolution of Para. IV litigation" and such settlements have "brought
enormous benefits to consumers by speeding the entry of generic drugs to the
market."

GPhA's brief points out
that "up to now," all circuit courts of appeal had agreed that
reverse payment settlement agreements were lawful and "did
not violate the antitrust laws, so long as the agreement did not restrain trade
beyond the scope of the patent itself."  The
Third Circuit, "[d]isagreeing with every
other circuit to reach the question," held these agreements presumptively
illegal as an antitrust violation, even when the agreement permits "the generic
to enter the market before the brand-name company's patent expires and even
when the agreement does not restrain trade beyond the scope of the patent."  Accordingly, the Supreme Court should rectify
this situation; otherwise, settlements of ANDA litigation shall be inhibited
and "an agreement that benefits consumers — by providing them with earlier
access to low-priced generic drugs than the brand-name patents would allow — into
a basis for treble damages liability under the antitrust laws."  The brief points out the paradox that left
to stand, the Third Circuit's decision "will inevitably delay the entry of
new generic drugs into the marketplace, with potentially devastating costs to
consumers and the Nation.

Speaking
on behalf of its membership, GPhA's brief contends that the "uncertain
legal regime" will extend to "a host of business and litigation
decisions that other circuits deem permissible," including not only "nationwide
class actions" but also enforcement actions by the FTC (the brief notes
that the Commission "has already vowed" to bring such actions").  This will "chill" efforts by
generic drug companies that promote competition by bringing "cost-saving
generic medicines to market."  Consequently,
GPhA argues that the uncertainties created by the Third Circuit's decision must
be resolved by the Court to permit new generic drug applications to be filed; unlike
arguments that focus on the investment by the branded drug companies, GPhA
argues that litigation costs are a significant contributor to the calculus of
whether a generic drug company develops a generic version of a branded
drug.  Uncertainty about the "legal
regime" that governs ANDA litigation, particularly when it limits the
ability to settle, will result in "fewer generic drug applications that
would trigger a patent challenge will be filed," GPhA argues in its
brief.  In view of the Third Circuit's
decision, "a settlement of litigation that is permissible in several
circuits may nonetheless lead to antitrust liability in the Third Circuit"
and that uncertainty "will inevitably deter generic drug manufacturers
from challenging patents to accelerate the entry of their products."  And this situation is not limited to the
Third Circuit, because the antitrust laws permit an action to be filed "in
any judicial district in the country" and plaintiffs can be expected to
flock to district courts in that circuit.  In this regard GPhA makes the paradoxical argument that the K-Dur decision "gave insufficient
weight to the patent rights at stake:  a patentee does not violate the antitrust
laws by exercising its patent rights, whether by bringing a patent-infringement
suit or by settling one."  And GPhA
reminds the Court that the reverse payment settlement agreement at issue in the
decision "has already been reviewed by two different courts of appeals,
with extensive participation by the federal government as both a party and as
amicus curiae" with decisions against (Third Circuit) and in favor (Eleventh
Circuit) the permissibility of the agreement under the antitrust laws.  Accordingly:

This Court should not leave the national
pharmaceutical market to be governed by the minority view of a single Third Circuit
panel; it should step in now to resolve this crucially important conflict.

The brief
accentuates the importance of the issues in this case to the pharmaceutical
industry, branded and generic alike.  The
Third Circuit's decision puts at risk a "multi-billion-dollar"
industry based on a "minority rule" from this Circuit.  The brief supports the importance of the
Court granting certiorari and (presumptively) overturning the Third Circuit's
decision by recounting (at length) the cost savings generic drugs provide to
the public and the provisions of the Hatch-Waxman Act that impose litigation
costs prior to market entry (which, presumably, would otherwise provide profits
to fund ANDA litigation), saying that "[t]he ability to litigate is the ["extremely
high"] price of admission" to the marketplace.  While acknowledging
that Hatch-Waxman provides for ANDA litigation, "nothing
in either the Hatch-Waxman Act or the antitrust laws mandates that every single
patent lawsuit under Paragraph IV must be fought to the bitter end."  The brief reminds the Court (as have the
parties and other amici) that
settlement is "generally permissible" in antitrust litigation, citing
Standard Oil Co. (Ind.) v. United States,
283 U.S. 163, 171 (1931).  And the brief
notes that the Hatch-Waxman Act specifically provides for FDA approval of a
generic company's ANDA upon settlement (21 U.S.C.§
355(j)(5)(B)(iii)(I),(II)).  Indeed, the
Act itself does not distinguish between judgment and settlement as ways to
terminate ANDA litigation, and Congress did not require branded and generic
companies to "litigate to the death" (a requirement that would
provide the branded drug company with an advantage because branded companies,
not generics, are making profits in the marketplace that can be used to fund
ANDA litigation).  Settlements benefit
consumers, GPhA argues, because ANDA litigation provides the "chief
obstacle[]" to market entry of generic drugs.  Thus, "settlements are a key way of
overcoming those obstacles and bringing cheaper pharmaceuticals to market
sooner [including "earlier or better access to the market"]"
which is the reason for the ANDA provisions of the Act.

The
brief also maintains that its arguments are supported by actual industry experience over the "past several years,"
where "hundreds of patent settlements" have "brought a low-cost
generic drug into the marketplace sooner than the brand-name drug's
patent would have permitted" (impliedly contrasting these actual data with
the economic hypotheses promulgated by the FTC).  Examples include Lipitor®
and tamoxifen, noting that Barr was able to bring a generic version of tamoxifen
to market nine years before patent expiry while three other generic companies
failed to prevail in separate ANDA litigation.  "If Barr had instead litigated to final judgment and lost as the
other companies did, the brand-name manufacturer would have faced no generic
competition for nine more years," the brief notes.  And even ignoring these benefits, GPhA argues
that the money not spent on ANDA litigation can be (better) spent "developing
and bringing to market a new generic drug" and conversely that limiting
settlements consigns these monies to litigation at the expense of new generic
drug development.

The
brief also (expressly) echoes party (and generic company) Upsher's brief
regarding the extent and nature of the circuit split created by the Third Circuit's
decision, extending to a disagreement over exactly the same settlement
agreement previously found lawful by the Eleventh Circuit.  In addition, the brief notes the overlap between
plaintiffs, defendants, agreements and amici
(including the FTC) in these several disputes.  While circumstances in earlier cases may have not support certiorari, "the case for [the]
Court's review has become incontrovertible," the brief argues.  And should the Court delay in deciding to
resolve these disparate legal standards, GPhA asserts that the only consequence
would be "gamesmanship and forum shopping" (in some instances by the
FTC itself).  Given the concentration of
pharmaceutical companies in the Third Circuit, the K-Dur decision affects the "epicenter of Paragraph IV litigation"
and (for that reason alone) merits review, according to the brief.  The likelihood for such a concentration of antitrust
challenges to ANDA litigation reverse payment settlement agreements is not
merely a prediction but relies on statements from the FTC Chairman Jon
Leibowitz that the Commission intends to file challenges to reverse payment
settlement agreements in district courts in the Third Circuit "for years
to come."  "Percolation"
of the issue, to the extent it might otherwise occur, "may well have come
to an end" in view of the Third Circuit's decision.

Getting
to the heart of the matter, the brief ends with an argument that the Third
Circuit's decision was simply wrong:

Patents restrict competition for a specified time, but they are not unlawful
restraints of trade.  Rather, they represent a determination by Congress that
the incentive to innovate justifies granting "Inventors the exclusive
Right to their . . . Discoveries" for a "limited Time[]."  U.S.
Const. art. I, § 8, cl. 8.  The court of appeals concluded that the rule of law
applied in its sister circuits must be wrong because no antitrust plaintiff has
yet prevailed under it.  See Pet. App. 32a-33a ("[N]o court applying
the scope of the patent test has ever permitted a reverse payment antitrust
case to go to trial.").  But the reason why plaintiffs do not prevail under
that rule is simply that they have not stated an unlawful restraint on competition:  a patentee has a statutory right to exclude its competitors from the
market, or to license its patent to competitors if it wishes.  Where, as here, the
agreement does not restrain any trade beyond the scope of the patent, there
simply cannot be an antitrust violation.

In a
statement released to the press, Ralph G. Neas,
President and CEO of the GPhA said:

Simply put, the Third Circuit erred in
its conclusion that the presumption of validity of a patent is not a
substantive right of the patent holder.  All other circuits that have
ruled have held that patent settlements are presumptively valid.  The Third
Circuit ruling is an outlier.

This
case could determine how an entire industry does business, because it would
dramatically affect the economics of each decision to introduce a new generic
drug.  The current industry paradigm of challenging patents on branded
drugs in order to bring new generics to market as soon as possible has produced
$1.06 trillion in savings over the past 10 years.

The facts are clear.  Patent settlements save.  They are
pro competition, pro-consumer and have saved consumers and taxpayers billions
of dollars.

For additional information regarding this topic, please see:

• "Bayer Files Amicus
Brief in K-Dur Case," September
27, 2012
• "PhRMA Files Amicus
Brief in K-Dur Case," September
26, 2012
• "Generic Defendant Petitions for Certiorari in K-Dur Litigation," September 16,
2012
• "Merck Asks Supreme Court to Review Third Circuit K–Dur Decision," August 28, 2012
• "The Federal Trade Commission Finally Wins One," July 18, 2012