By
Kevin E. Noonan —

In
a move that will surprise almost no one (except perhaps members of the Supreme
Court majority in FTC v. Actavis),
the Federal Trade Commission has filed an amicus
curiae brief with the District Court of New Jersey in In re Effexot XR Antitrust Litigation.  This time the issue is not that the parties,
Wyeth (branded) and Teva (generic) have entered into a reverse payment
settlement agreement in their ANDA litigation under the Hatch-Waxman Act.  Rather, the agreement the FTC now objects to
involves Wyeth committing not to launch a so-called "authorized generic"
form of its branded Effexor XR extended-release product.  As a consequence, Teva will forego entering
the market with its generic product for two years, but will enter the market
several years before it would otherwise be able to do so.

The
FTC makes three arguments:

• The Supreme Court's Actavis
controls and the District Court should apply "traditional" antitrust
principles under the rule of reason to this agreement.

• The
"no authorized generics" agreement as economic effects that will harm
consumers.

• These
economic effects amount to a restraint on trade that raises the same economic
concerns as reverse payments and has an adverse effect on competition.

Ignoring
the now standard incendiary language of the brief (replete with references,
some of which the Commission gratuitously adds to language from the Court's Actavis opinion, to "monopoly
profits" as if we were still living in the days of the oil barons), the
FTC's argument comes down to whether the Supreme Court in Actavis banned cash settlement agreements or more generally ruled
that settlement agreements in ANDA litigation should always garner antitrust
scrutiny.  According to the FTC's brief, the
Supreme Court "rejected a legal rule that conferred 'near automatic
antitrust immunity' on patent settlements when the alleged anticompetitive
restraints do not extend beyond the patent's expiration date."  (It should be noted that the "scope of
the patent" test used by the Second, Eleventh, and Federal Circuits, and
rejected by the Actavis majority, was
significantly more detailed and nuanced than the FTC's characterization of
it.)  The Commission in its argument bootstraps the
Court's rejection of antitrust immunity for settlement agreements involving "large
cash payments" to any exchange of other consideration, thus ignoring the
reality that parties don't settle ANDA litigation (or any other kind) without
some form of consideration.

One
aspect of the agreements under consideration by the District Court is that Teva
will get something it couldn't get in litigation:  an agreement that Wyeth will
not launch a competitive authorized generic.  But this is just part of the consideration Teva will obtain for dropping
its patent challenge, a challenge that represents a much bigger threat to Wyeth
than winning the challenge presents for Teva.  That should not make the settlement seem nefarious but, applying the FTC's
standards, it is sufficiently suspicious to warrant antitrust scrutiny because
it is not limited to the Commission's narrow view of what should be permissible.

While
the Commission is correct that the type of licensing agreement at issue in the Effexor case has economic implications,
the Court did not decide in Actavis
that such considerations were sufficient to raise antitrust scrutiny, and the FTC's
position is certainly not mandated by the Court's Actavis opinion.  Indeed,
Justice Breyer specifically envisioned that settlements in ANDA litigation
would not be barred by his decision:

[T]he fact that a large, unjustified reverse payment risks
antitrust liability does not prevent litigating parties from settling their
lawsuit.  [ANDA litigation can be settled in] other ways, [] by allowing the
generic manufacturer to enter the patentee's market prior to the patent's
expiration, without the patentee paying the challenger to stay out prior to
that point.

The
Court's concern was not with settlements, but with excessive payments:

Where a reverse payment
reflects traditional settlement considerations, such as avoided litigation
costs or fair value for services, there is not the same concern that a patentee
is using its monopoly profits to avoid the risk of patent invalidation or a
finding of noninfringement.  In such cases, the parties may have provided
for a reverse payment without having sought or brought about [] anticompetitive
consequences.

And
the Court expressly rejected the FTC's position that reverse payment settlement
agreements should be presumptively illegal, stating that "the
likelihood of a reverse payment bringing about anticompetitive effects depends
upon its size, its scale in relation to the payor's anticipated future
litigation costs, its independence from other services for which it might
represent payment, and the lack of any other convincing justification."  A fortiorari a settlement that does
not involve a large cash settlement should be even less suspect for antitrust
purposes.

Such agreements are not, as the FTC
alleges in its brief, an attempt to "easily circumvent" the Court's
decision in Actavis, but rather are a
rational (and predictable) effort to comply with the Court's admonition that
ANDA cases be settled in ways that do not involve large cash payments from
branded to generic drug companies for dropping their patent challenge.  The extent of the Commission's fixation on
preventing transfer of anything of "value" is illustrated by the
brief's equation of the licensing agreement here to "gold bullion, stocks
or real estate," but that is not what the Court said raised legitimate
antitrust concerns in reverse payment settlements of ANDA litigation.  What for the Commission is merely a means of "avoiding"
a ban on settlements (that does not exist in the Court's opinion) can be at least
equally seen as an agreement that falls within the scope of the "alternative"
settlement arrangements that the Court impliedly sanctioned.

There is, apparently, one type of
agreement that the Commission would sanction:  where "the parties in
Hatch-Waxman patent litigation settle with an agreement that merely sets a date
for the generic patent challenger's market entry before the patent expiration
date, without more."  If this is
what the Commission wanted, it had a ready way to get it:  it could have asked
the Court to make this limitation plain and explicit.  Instead, it asked that the Court rule these
agreements of any type to be presumptively illegal, a position the Court
rejected (and, moreover, in a decision that suggests that settlement agreements
of much broader scope should survive antitrust scrutiny).

The
Federal Trade Commission, as many expected, cannot be trusted to adopt any
reasonable interpretation of the antitrust laws when it comes to applying them
in the Hatch-Waxman context.  Despite arguing
to the Supreme Court that the problem was reverse payment agreements involving
excessive settlement amounts from branded to generic companies, it is clear
that the Commission will only be happy when all grounds for settlement in ANDA
litigation have been eliminated.  As the
Chief Justice warned in dissent in the Actavis case:

The irony of all this is that the
majority's decision may very well discourage generics from challenging
pharmaceutical patents in the first place.  Patent litigation is costly,
time consuming, and uncertain.  . . .  Generics "enter this
risky terrain only after careful analysis of the potential gains if they
prevail and the potential exposure if they lose."  . . .  Taking
the prospect of settlements off the table — or limiting settlements to an
earlier entry date for the generic, which may still be many years in the future
— puts a damper on the generic's expected value going into litigation, and
decreases its incentive to sue in the first place.  The majority assures
us, with no support, that everything will be okay because the parties can
settle by simply negotiating an earlier entry date for the generic drug
manufacturer, rather than settling with money.  . . .  But it's a
matter of common sense, confirmed by experience, that parties are more likely
to settle when they have a broader set of valuable things to trade.  [citations omitted.]

Sadly,
the likely outcome of this ideological crusade against any settlement
agreements in this type of litigation will be to reduce rather than promote
generic drug competition.  When an agency
puts on such blinders to practical reality it is hard to understand how they
can believe they are acting in the public interest.