By
Kevin E. Noonan —

Joining
the parties and amici with clear
interests in resolving the circuit split created by the Third Circuit opinion
in the K-Dur case (In re K-Dur Antitrust Litigation), the Washington Legal
Foundation, self-described as having the aim of "promot[ing] economic
liberty, free enterprise, and a limited and accountable government," filed
an amicus brief urging the Supreme Court to grant certiorari.

The
WLF's brief opens by presenting its bona
fides on the issue of reverse payment settlement agreements, specifically
noting its participation as an amicus in both the Third Circuit's consideration
of the K-Dur reverse payment settlement agreement as well as in the Eleventh
Circuit's consideration of the same agreement in Schering-Plough Corp. v. Federal Trade Commission, 402 F.3d 1056 (Fed. Cir.
2005).  In the WLF's opinion, the Third
Circuit's decision "creates an intolerable conflict" wherein an
appellate circuit now exists that recognizes "substantially diminished
patent rights" for patentees.  Making the only argument that may prove persuasive, the brief argues
that the consequence will be to "stifle the incentives for generic drug
makers to compete with brand-name drug companies" in contravention of
Congress' intent in enacting both the antitrust laws and the Hatch-Waxman Act.

After
an (unnecessary) explication of the background of the case and the "scope
of the patent" rule adopted by three other Circuits that have considered
the legality of reverse payment settlement agreements (the Second, Eleventh and
Federal Circuits), the brief does highlight for the Court the fundamental
presumptions behind the Third Circuit's reasoning (presumptions created by the
FTC in its briefing and policy position papers cited in the Third Circuit
opinion).  Specifically, this reminder is
that "[t]he Third Circuit agreed with the FTC's position that 'there is no
need to consider the merits of the underlying patent suit because '[a]bsent
proof of other offsetting considerations, it is logical to conclude that the quid pro quo for the [reverse] payment
was an agreement by the generic to defer entry beyond the date that represents
an otherwise reasonable litigation compromise.''"  Regardless of the
soundness vel non of this logic, the
disregard for the merits of the patent infringement suit seems to beg the
question of whether the agreement is anticompetitive.

The
circuit split, and the FTC's avowed intention to take advantage of its
success in convincing the Third Circuit to agree with its view of reverse
payment settlement agreements by bringing antitrust actions preferentially in
district courts in the Third Circuit, "will distort innovation in the drug
industry," as well as being "grossly unfair" and "incompatible
with the national procedural scheme or [] generic drug entry [] under the
Hatch-Waxman Act."  The Third
Circuit's "misguided decision threatens to dampen significantly the
incentives that generic drug makers would otherwise have to challenge pioneer
patents and compete with brand name drug companies[,] by stifling the generic
drug maker' prospects for winning advantageous settlements" says the WLF's
brief, making the argument that settlement, as well as prevailing in ANDA
litigation, is a reasonable expectation for generic drug companies that
fulfills rather than frustrates Congress' intentions under the Hatch-Waxman
Act.  Thus, what would be anticompetitive
would be for the Court to adopt the Third Circuit's standard (and the further
expansions of this reasoning the FTC has adopted since the Third Circuit's K-Dur decision.  This case "provides the best vehicle"
to resolve the issue, the brief argues, because all parties (the branded and
generic companies who were parties to the reverse payment settlement agreement,
the antitrust plaintiffs, drug wholesalers and retailers and consumer groups,
and the FTC) that had participated had been "thoroughly represented" in the
case (an argument that can and will be contrasted with the FTC's position in
its certiorari petition in FTC v. Watson,
"the Androgel case").

In
its detailed argument in support of these general propositions, the WLF cites
Supreme Court precedent for the proposition that the patent grant provides
exclusive rights in order to "stimulate innovation and risk taking"
for developing new technologies ("Promoting the Progress [] of the Useful
Arts").  Part of these rights by
statute is the right to license, or refuse to license, the patented
technology.  35 U.S.C. §§
261, 271(d)(4)-(5).  All these rights,
and others in the statute, create "a statutory monopoly" the WLF
reminds the Court, citing Sears, Roebuck
& Co. v. Stiffel, 376 U.S. 225, 229 (1964), and Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S. 176,215
(1980).  And the brief cites Judge
Richard Posner of the 7th Circuit (who, despite recent intemperate
and unfounded criticisms of the patent systems certainly understands antitrust
law), sitting by designation in Asahi
Glass Co., Ltd. v. Pentech Pharms., Inc. for the proposition that:

A firm that has received a patent from the
patent office (and not by fraud . . .), and thus enjoys the presumption of
validity that attaches to an issued patent, is entitled to defend the patent's
validity in court, to sue alleged infringers, and to settle with them, whatever
its private doubts, unless a neutral observer would reasonably think either
that the patent was almost certain to be declared invalid, or the defendants
were almost certain to be found not to have infringed it, if the suit went to
judgment.  It is not 'bad faith' to
assert patent rights that one is not certain will be upheld in a suit foe
infringement pressed to judgment and to settle the suit to avoid risking the
loss of rights.  No one can be certain that he will prevail in a patent
suit."

289 F. Supp. 2d 986, 992-93 (N.D.
Ill 2003) (emphasis in original).  The
brief also reminds the Court that it has affirmed that settlement of a patent
suit is not, per se, "precluded
by the [Sherman] Act," citing Standard
Oil Co. v. U.S., 283 U.S. 163,171 (1931). 
Support for Judge Posner's reference to "fraud" can be found
in the Court's decision in Prof'l. Real
Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60
(1993), where only if a claim [in that case, to antitrust immunity under the Noerr-Pennington doctrine] is "objectively
baseless."

The
brief also argues that the "scope of the patent" test employed by
other circuits in assessing the legality of reverse payment settlement
agreements "preserves for the holders of pharmaceutical patents all the
same legal rights enjoyed by other patent holders," including of course
the right to settle patent infringement litigation.  Litigation is an integral part of the
Hatch-Waxman regime, the WLF argues, and part of that regime encourages "the
parties to resolve their patent disputes promptly through legal action"
including settlements of such suits.  The
brief cites the explication of the differences between ANDA litigation and
conventional patent infringement litigation set forth in the other appellate
court opinions to support its argument that settlement is consistent with the
Congressional aims embodied in the Hatch-Waxman Act.

The
WLF argues that the Third Circuit has shifted the burden to prove
precompetitive effects of reverse payment settlement agreements, rather than
the burden falling on challengers of these agreements to establish that they
are sufficiently anticompetitive to contravene the antitrust laws.  This amounts to per se antitrust liability in view of the Third Circuit's disregard
for the "merits of the underlying [patent] litigation," the brief
argues.  The patentee is thus precluded
from showing that in the absence of settlement it "would likely have
prevailed in enforcing its patent," which would mean that the settlement
was more competitive than pursuing litigation to its conclusion.  The brief also identifies the "suspicion"
inherent in the FTC's position adopted by the Third Circuit regarding payment
from the branded to the generic drug maker, but reminds the Court that there
will always be some "consideration" obtained by the generic drug
company as an incentive to settle ("[o]therwise the defendant would have
little or no reason to settle").

The
brief then completes the connection between the Third Circuit's decision and
the incentives created by the Hatch-Waxman Act, arguing that brand name drug
makers will have less incentive to invest in research and development through a
reduced ability to protect its "pioneer patents," and generic drug
makers will have less incentive to challenge patents protecting brand name
drugs because they will be compelled to pursue the litigation to its conclusion
(and in either case monies that could otherwise be used to fuel innovation is
used instead to pay litigation costs). 
Adoption of the Third Circuit's presumption that reverse payment
settlement agreements are anticompetitive and unlawful, requiring courts to
perform a "quick look" rule of reason analysis and placing the burden
on the patentee to establish the precompetitive nature of the agreement will have
the result of creating "a disincentive for genetic drug makers to compete
by challenging pharmaceutical patents in the first place" and "thus
ultimately decrease the availability
of low-cost drugs" (emphasis in opinion).  Bans on reverse payment settlement agreements will work this
disincentive by precluding a "date certain" (other than the patent
expiry date, which is only certain of the generic drug company does not
prevail) for early generic drug entry (and any reverse payment).  The result in the case at bar, generic drug
entry by several generic drug companies several years before the patent expires
is itself precompetitive (rendering any decision anticompetitive that would
foreclose the opportunity for such a settlement to be legal).

Finally,
the brief reminds the Court of the expansive scope of the FTC's appreciation of
the opportunity the Third Circuit decision has given it (and a prelude of how
the FTC will pursue the parties to such agreements) by citing the Commission's
amicus position in the Effexor®
case (In re Effecor XR Antitrust
Litigation, D.N.J. 2012).

By
Kevin E. Noonan —

Joining
the parties and amici with clear interests in resolving the circuit split
created by the Third Circuit opinion in the K-Dur
case (In re K-Dur Antitrust Litigation), two "public interest"
groups have also filed amicus briefs urging the Supreme Court to grant
certiorari.  These groups, the New York
Intellectual Property Law Association (NYIPLA) and the Washington Legal
Foundation, like every other brief, urge the Court to review the Third Circuit
decision.  Each brief also presents
supplemental questions or alternative points of view that may pique the Court's
interest enough to support the certiorari grant.  The NYIPLA's brief will be discussed in this
post.

The
NYIPLA's brief opens by characterizing the Questions Presented by the branded
(Merck) and generic (Upsher-Smith Labs) petitioners as "accurately and
fairly characteriz[ing] the ultimate issue" for the Court to resolve by
granting certiorari.  The brief also presents four "subsidiary
questions" for the Court's consideration:

Subsidiary
Question 1. Whether the Third Circuit erred in presuming, in a private Clayton
Act antitrust action alleging a Sherman Act Section 1 violation, that a
potential seller of generic pharmaceuticals would have entered the market "at
risk" absent an earlier settlement of a Hatch-Waxman patent infringement
suit which included a "reverse payment" provision;

Subsidiary Question 2. In the absence of proof that
a patent infringement suit brought under the Hatch-Waxman Act was "objectively
baseless in the sense that no reasonable litigant could realistically expect
success on the merits", and after an entry date for a generic manufacturer
is specified in a settlement agreement that also contains a reverse payment
term, whether the Third Circuit erred in determining hypothetically that some
earlier alternative entry date would have represented "an otherwise
logical litigation compromise" in the absence of the reverse payment term;

Subsidiary Question 3. In a private Clayton Act antitrust
action alleging a Sherman Act Section 1 violation, did the Third Circuit err by
applying a "quick look" rule of presumptive illegality to a
complicated fact pattern presenting both patent-antitrust interface and
Hatch-Waxman issues extremely similar if not identical to those presented in
eight previous federal appellate court cases in which, as properly interpreted,
a full-blown rule of reason inquiry was required; and

Subsidiary Question 4. Would application of the
Third Circuit panel's decision interfere directly with the ability of the
generic manufacturers to effectively manage their Hatch-Waxman litigation
dockets and eventually frustrate the Congressional objective of maximizing
patent challenges.

In addition to legal argument and citation to case
law, the NYIPLA's brief provides as appendices studies (by Pricewaterhouse
Cooper, GPhA and RBC Capital Markets) relating to the cost of ANDA litigation
and the positive impact of generic drug substitution for branded drugs
consequent to the Hatch-Waxman Act.  In
addition to supporting these questions, the NYIPLA's brief addresses some of the assumptions
(express and implicit) in the Third Circuit's reasoning.

The brief questions the Third Circuit panel's "implicit
inference" that generic drug makers would have entered the market "at
risk" in the absence of settlements that were free of the type of
antitrust attack pressed by the FTC and antitrust plaintiffs.  The brief argues that there is no empirical
evidence that a generic drug maker would enter the market at risk, inter alia,
because any actual damages (even without consideration of the risk of treble
damages from a finding of willful infringement) would likely be much greater
than any profits the generic drugmaker could make from sales of generic substitutes
for branded drugs.  In fact, the empirical evidence is to the contrary:  of 158
ANDA litigations that settled from 2003-2009, only 28 of the generic drugs were
launched at risk (and these at-risk launches were by the largest generic drug
manufacturers).  The brief also sets
forth the launch of Apotex's generic Plavix drug product, which resulted in
damage and pre-judgment interest award of $551 million.  And the brief argues that "delay"
cannot merely be presumed, but rather that the FTC or antitrust plaintiffs must
establish that there would have been a delay in the first place (which is
controverted by the empirical evidences discussed above).  Nor can the FTC, antitrust plaintiffs or the Court presume (as the brief asserts the Third Circuit did) that there was a "causal
nexus" between the reverse payment settlement agreement and any alleged
delay.  Finally in this regard the brief
argues:

The
facts regarding at risk entry while Hatch-Waxman patent litigations remain
unresolved are not subject to dispute.  The uncertainties of patent litigation
and the asymmetric litigation and settlement economics imposed by the
Hatch-Waxman Act mandate that at risk entry remains unusual and subject to
risk.  Indeed, only the largest of the generic manufacturers seem willing to
undertake that risk on a regular though still unusual basis.  As illustrated by
the decision of Apotex to launch its generic Plavix, moreover, expensive
mistakes are sometimes made.  As the magnitude of the Plavix damages indicate, a
miscalculation regarding anat risk launch might well bankrupt a smaller generic
manufacturer.

The brief then explicitly addresses the question of
whether the Supreme Court's Professional
Real Estate case is controlling.  That case set forth a two-prong test for the application of antitrust
liability in patent infringement litigation:  first, that the patent
infringement lawsuit must be "objectively baseless"; and second, the
subjective intent of the parties was to enter into an agreement "in
restraint of trade."  The brief
characterizes the Third Circuit opinion as disregarding the objective prong of
the test, a result that requires certiorari for correction.

The brief directly identifies the Third Circuit's
decision as coming "at the behest of the enforcement agencies," an
accurate characterization in view of how completely the Third Circuit panel
adopted the FTC's rationales and based its decision on policy and position
papers promulgated by the Commission during its decade-long attack on reverse
payment settlement agreements.  The brief
specifically urges the Court to rule on whether the Third Circuit's "quick
look" rule of reason analysis is consistent with Supreme Court precedent.

Finally, the brief argues that the Court should
consider the "unintended consequence" of applying the rule of
presumptive illegality on these agreements, in view of the evidence that
instead of promoting generic drug entry the rule would frustrate efforts to
provide generic substitutes for branded drugs, based on "interfere[nce]
with litigation resource allocation by the generic manufactures."  These arguments are presented in the context
of a general argument that the Hatch-Waxman regime has been "enormous[ly]
success[ful]," saving consumers almost $1 billion from 2001-2010
alone.  Contrary to the Third Circuit's
assumptions, the brief argues that empirical evidence (from the 2012
Pricewaterhouse Coopers study) indicates that "the majority of ANDA
litigation[] continue to end in settlement."  Adopting the Third Circuit's "presumptively
illegality" standard, NYIPLA argues, would "inevitably result in loss
of the litigation management and financing flexibility that is critical to the
success of the generic manufacturers and, eventually, would frustrate the
Congressional objective by forcing a reduction in the net number of
Hatch-Waxman challenges" (and the brief notes that the FTC has
acknowledged this expected outcome, citing a footnote in the Commission's 2010
study, "Pay-for- Delay: How Drug Company Pay-Offs Cost Consumers Billions."

The Washington Legal Foundation's brief will be
discussed in a later post.  In the
interim since these briefs were filed, however, the FTC has filed a petition
for certiorari in FTC v. Watson, a case the Commission
argues is better positioned for the Court's review of the question of the
legality of reverse payment settlement agreements.  The Court could grant certiorari in that case and hold petitions in the K-Dur case in abeyance or could
consolidate these cases for review.  In
view of the Court's grant of certiorari in
Bowman v. Monsanto, however (and that
in the face of views of the Solicitor General that certiorari should not be granted in Bowman), it is likely that the Court will not only grant certiorari but also continue its recent
penchant of deciding cases to limit the scope of patent protection.