The Antitrust Review blog reported that the Solicitor General’s Office submitted a brief to the Supreme Court urging the Court to deny certiorari in the reverse payment case Joblove v. Barr Labs (S.Ct. No. 06-830). Earlier, the Supreme Court had asked for the government’s views on the antitrust effects of settlement agreements between holders of drug patents and generic drug makers enjoying the 180-day market exclusivity after Food and Drug Administration approval. This case involves the same legal issue that was raised in FTC v. Schering-Plough Corp., No. 05-273 (Jun. 26, 2006; denying certiorari), as well as three other recent petitions.

The issue is the appropriate antitrust standard applicable to an agreement between a brand pharmaceutical manufacturer (and patent holder) and a generic market entrant (and alleged patent infringer) whereby the patent holder shares a portion of its future profits with the alleged infringer in exchange for the latter’s agreement to not market its competitive product. The three Circuit Courts of Appeals that have addressed the issue have rendered inconsistent decisions.

These antitrust class actions involve the prescription drug tamoxifen citrate (tamoxifen), a drug for the treatment of breast cancer. Zeneca manufactures and markets tamoxifen under the brand-name Nolvadex®. Zeneca’s former parent, Imperial Chemical Industries PLC (ICI), held the patent for tamoxifen, U.S. Patent 4,536,516 (‘516 Patent). In 1987, Barr amended its ANDA for tamoxifen to include a Paragraph IV Certification, which prompted a patent infringement suit by ICI (Zeneca’s parent which was then the patent holder). In 1992, the ‘516 Patent was held invalid and unenforceable.

While an appeal from the judgment invalidating the patent was pending in the Federal Circuit, Zeneca and ICI, the patent holders, and Barr, the alleged infringer, agreed to settle the case. Zeneca and ICI agreed to: (1) pay Barr $21 million; (2) pay Barr’s supplier $35.9 million; and (3) supply Barr with Zeneca-manufactured tamoxifen for resale in the United States at a high royalty rate.

In return, Barr agreed to: (1) abandon its successful challenge of the tamoxifen patent; (2) withdraw its Paragraph IV Certification to manufacture and market generic tamoxifen prior to the patent’s expiration; and, if possible, and (3) prevent competitive entry by future generic manufacturers.Now, the FTC alleges that the Agreements unlawfully restrained competition in the market for tamoxifen in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and analogous state statutes. The question presented being:

“Under what circumstances is an agreement by a brand pharmaceutical manufacturer (and patent holder) to share a portion of its future profits with a generic market entrant (and alleged patent infringer), in exchange for the generic’s agreement not to market its product, a violation of the antitrust laws?”

In FTC v. Schering-Plough, the Solicitor General urged that no conflict existed that would warrant the Court’s review of this issue, based on the same body of case law that exists today.

Oddly, while stating up-front that this case “raises important and complex issues“:

There may be particular reason to be concerned about the competitive consequences of a settlement that includes a substantial payment from the patent holder to the alleged infringer. Such a “reverse payment” can be a device for the sharing of the monopoly rents that are preserved when the alleged infringer is induced to stay out of the relevant market and drop its challenge to the validity of the patent.

and while noting that “the court of appeals adopted an insufficiently stringent standard for scrutinizing patent settlements that include reverse payments”:

The dissenting opinion below correctly suggested that a court reviewing an antitrust challenge to a settlement of a patent infringement claim that includes a reverse payment should apply the rule of reason—and that, in doing so, a court should consider “the strength of the patent as it appeared at the time at which the parties settled.” Pet. App. 125a-126a. The panel majority, however, rejected that approach and instead held that such a settlement would be valid unless (1) the settlement “extend[ed] * * * the monopoly beyond the pat-ent’s scope”; (2) the settlement involved fraud; or (3) the underlying lawsuit was “objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits.” Id. at 52a (internal quotation marks and citation omitted). That standard is erroneous.

The SG turned around and pleaded that “this case does not present a good vehicle for addressing the question presented”:

Although the court of appeals applied an erroneous standard for scrutinizing patent infringement settlements that include reverse payments, this case is not an attractive vehicle for the Court’s consideration of the difficult and context-sensitive questions involved in assessing the legality of such settlements. The federal antitrust claims in this case appear to be moot, the factual setting is atypical and unlikely to recur, and subsequent regulatory changes may undercut one of the theories of competitive harm advanced by petitioners. For those reasons, the petition should be denied.

In their complaint in this case, petitioners sought injunctive and declaratory relief under Sections 1 and 2 of the Sherman Act, 15 U.S.C. 1 and 2. See C.A. App. A64-A67. Specifically, petitioners sought “the issuance of an injunction prohibiting [respondents’] continued compliance with the terms of the unlawful Agreement[s]”: i.e., the settlement that terminated the patent infringement litigation. See id. at A67. Zeneca’s patent, however, expired in 2002—and it is undisputed that the settlement ceased to have any effect at that time. As a result, an injunction prohibiting compliance with the settlement would have no operative force. Because petitioners did not seek any other equitable relief, the Sherman Act claims in this case appear to be moot.

The settlement challenged in this case involves an unusual factual setting that will almost certainly not recur, and thus there is a risk that the Court’s resolution of this case could turn on its unique facts in a way that would not provide clear guidance for other, more common factual settings. The government is not aware of any other Hatch-Waxman patent settlements arising after a district court judgment of invalidity, and none is likely to occur in the future in light of this Court’s decision in U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18 (1994), which should prevent a patent holder from obtaining vacatur of a judgment of invalidity by settling the case while the appeal is pending.

Changes in the regulatory context have also altered the regulatory dynamic with respect to one of the theories of competitive harm advanced by petitioners, who argued in part below that Barr’s agreement to assert its exclusivity rights could preclude competition from other generics. See Pet. App. 59a-68a. In 2003, Congress amended the Hatch-Waxman Act to provide for forfeiture of the 180-day exclusivity period for various reasons, including the withdrawal of a paragraph IV certification. See 21 U.S.C. 355(j)(5)(B)(iv) and (D) (Supp. IV 2004).8 Congress also provided that any generic manufacturer that filed an ANDA with a paragraph IV certification on the same day as the first filer would be treated as a first filer itself (and thus would be able to take advantage of the 180-day exclusivity period as against other, later filers). See 21 U.S.C. 355(j)(5)(B)(iv)(II)(BB) (Supp. IV 2004). As a practical matter, therefore, it may now be more difficult for a first-filing generic manufacturer to enter into a settlement and then use the 180-day exclusivity period effectively to lock other generic manufacturers out of the market, as Barr attempted to do in this case.

More at:

Pharmalot and the Orange Book blog.

The Solicitor General’s Office Brief.

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