Last week the U.S. Court of Appeals for the Eleventh Circuit affirmed the dismissal of antitrust claims by the Federal Trade Commission relating to a settlement of pharmaceutical patent litigation. The FTC objected to the settlement agreement because it contained a so-called “pay for delay” provision by which a branded pharmaceutical manufacturer paid a generic manufacturer to keep its competing product off the market for a specified period of time. Federal Trade Commission v. Watson Pharmaceuticals, Inc., No. 10-12729 (11th Cir. Apr. 25, 2012).
The court acknowledged that antitrust laws typically prohibit agreements in which one company pays a potential competitor not to enter the market. The court also observed that,
A patent holder and any of its challengers cannot enter into an agreement that excludes more competition than the patent has the potential to exclude. If a reverse payment settlement reduces generic competition to a greater extent than the patent grant potentially does, the holder of the patent has used the settlement to buy exclusionary rights that are not contained in the patent grant, and those additional rights are vulnerable to antitrust attack…. If any provisions of the settlement create restraints on competition beyond that [the legitimate] scope [of the patent], … those excesses “may then be subject to traditional antitrust analysis to assess their probable anticompetitive effects in order to determine whether [they] violate § 1 of the Sherman Act.”
The court rejected the FTC’s argument that a patent holder may not enter into a reverse payments (or “pay for delay”) settlement if the holder is “not likely to prevail” in patent infringement litigation against the generic drug manufacturer. The court synthesized its ruling as follows:
[A]bsent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.