Pay-for-delay pharmaceutical settlements have been a point of contention for over a decade. Such agreements entail a branded drug manufacturer paying a generic drug manufacturer a large sum of money to withdraw their drug patent challenge and refrain from entering the market of the branded drug for a specified amount of time. In the end, the pharmaceutical companies benefit at the expense of consumers by discouraging competition and keeping drug prices artificially high.
The Hatch-Waxman Act governs pharmaceutical drug patents. The act is aimed at balancing innovation and competition; it attempts to protect strong patents and invalidate weak patents. One particularly controversial section grants a 180-day exclusivity period to the first generic company to file for FDA approval. At first glance, such a provision appears logical, as it should incentivize generics to challenge weak or invalid drug patents and thereby increase the number of generic drugs available to consumers. Unfortunately, as Prof. Scott Hemphill of Columbia Law School explains, the first-to-file receives the exclusivity period regardless of whether or not they ultimately invalidate the branded company’s patent or successfully avoid infringement. Thus, such a scheme instead encourages the branded company to simply buy-off the only generic eligible for the lucrative exclusivity period, rather than risk facing the unpredictability of a lay judge or jury in court with a potentially limited science background.
Such pay-for-delay settlements have been routinely challenged over the past decade in numerous circuit courts but have not yet been addressed by the Supreme Court of the United States. Despite heavy lobbying from the Federal Trade Commission (FTC), the Supreme Court denied certiorari in a pay-for-delay case as recently as March 2011, presumably because the three most recent circuits to weigh in on the issue – In re Ciprofloxacin Hydrochloride Antitrust Litigation (Fed. Cir. 2008), In re Tamoxifen Citrate Antitrust Litigation (2nd Cir. 2006), and Schering-Plough Corp. v. FTC (11th Cir. 2005) – all held such settlements as per se lawful absent fraud. Thus, a crucial circuit split demanding immediate attention did not exist. On July 16, 2012, however, the landscape drastically changed. In a surprising decision, the Third Circuit disagreed with the other circuits and held that pay-for-delay settlements are presumably unlawful and anticompetitive.
In Re K-dur Antitrust Litigation
The case at issue is In Re K-dur Antitrust Litigation (hereinafter K-dur). K-dur, a drug manufactured by Schering-Plough Corporation, is a sustained-release potassium chloride supplement used to treat potassium deficiencies. Generic company Upsher-Smith Laboratories decided to produce a generic version of the drug, and Schering-Plough sued for infringement of its patent on K-dur’s outer coating allowing for the drug’s sustained-release. Rather than resolving the issue in court, Schering-Plough agreed to pay Upsher-Smith a minimum of $60 million over three years in exchange for Upsher-Smith agreeing to refrain from producing its generic for slightly over four years. A class of wholesalers and retailers, including CVS Pharmacy and Rite Aid Corporation, then filed suit against the two pharmaceutical companies, alleging the pay-for-delay agreement was a violation of antitrust regulations.
Following the shocking ruling by the Third Circuit that such a settlement is presumably unlawful, Merck, who recently acquired Schering-Plough, immediately filed a petition for certiorari to the Supreme Court on August 24, 2012. Given the circuit split, it appears the likelihood of the Court granting certiorari in K-dur is a slam-dunk, right? Not so fast.
FTC v. Watson Pharmaceuticals, Inc.
Earlier this month, the FTC appealed the Eleventh Circuit’s Androgel® pay-for-delay case FTC v. Watson Pharmaceuticals, Inc. (hereinafter Watson) to the High Court. The FTC, while agreeing with Merck that the Supreme Court must address the pay-for-delay issue, argued in its petition for certiorari that Watson and not K-dur is the preferable case for the Court to review. The FTC cited the following four reasons: (1) Watson is a petition by an experienced federal agency while K-dur involves private class-action litigation; (2) Watson involves a motion to dismiss while K-dur concerns a motion for summary judgment; (3) the patent in Watson remains valid until 2015 while the patent in K-dur already expired and thus K-dur only concerns retroactive damages; (4) the FTC in Watson relies on an argument of patent invalidity while the plaintiffs in K-dur do not (see pages 29-32 of the cert. petition).
The Supreme Court now has four choices to mull over: grant certiorari in K-dur, grant certiorari in Watson, grant certiorari in both cases and consolidate, or decline to hear either case. The latter appears unlikely, as all parties involved – pharmaceutical companies, the FTC, pharmacy retailers, drug wholesalers, the public – want the Court to stop beating around the bush and address the pay-for-delay issue head on. And after the recent Third Circuit decision, there is a crystal-clear circuit split. Hopefully, after over a decade of high-profile settlements and litigation, the Court will finally provide some closure to this issue.