While not as fundamentally important as Bong Hits 4 Jesus, the U.S. Supreme Court declined to hear a case profoundly important to the pharmaceutical industry. For the second time, the Court rebuffed a challenge to a “reverse payments” deal — this one where an AstraZeneca company paid off a Barr Pharmaceuticals company to delay marketing of generic tamoxifen.

Earlier, 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). 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).

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.

Zeneca manufactures and markets tamoxifen citrate (tamoxifen), a drug for the treatment of breast cancer, 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. 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). 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.

An official at the U.S. Federal Trade Commission said the FTC remains committed to pursuing cases against reverse payments by pharmaceutical companies that it deems to be anti-competitive. The FTC had filed an appeal but did not file a brief in this case.

See the Solicitor General’s Office Brief.

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