The Federal Trade Commission has filed an amicus brief in a class action that questions whether brand name drug companies can pay generic rivals to stay out of the market until a patent expires.
According to the FTC, which files only a handful of amicus briefs each year, such agreements cost consumers $3.5 billion per year by depriving them of generic alternatives to brand-name drugs.
The case, now before the U.S. Court of Appeals for the Third Circuit, involves a settlement between Schering-Plough Corp., which owned a key patent (now expired) for the high blood pressure medication K-Dur 20, and generic drug makers Upsher Smith and ESI (formerly a division of Wyeth).
In 1995, the two generic companies sought U.S. Food and Drug Administration approval to make generic K-Dur. Schering sued them for patent infringement. On the eve of trial, Schering agreed to pay Upsher – the alleged infringer - $60 million if it agreed to abandon efforts to make generic K-Dur until 2001. Schering separately agreed to pay ESI up to $15 million in exchange for ESI’s agreeing not to market its generic version of K-Dur until January 2004.
For the FTC, the brief is akin to a second bite at the apple. The agency itself challenged the K-Dur deal in 2001, arguing that it was anti-competitive and violated Section 5 of the FTC Act, only to lose before the Eleventh Circuit.
In the class action, the purchasers of K-Dur 20 allege that Schering’s settlement agreements with Upsher and ESI violated the Sherman Act.
The district court disagreed, and granted defendants’ motions for summary judgment. The court found that unless Schering’s patent infringement suit was “objectively baseless,” there could be no antitrust challenge unless the settlement restrained competition beyond “the scope of Schering’s patent.”
It’s an issue of first impression before the Third Circuit. Other courts of appeal have split, with the Second and Federal Circuits tolerating such exclusion payments, while the Sixth and D.C. Circuits suggest that these settlements could violate antitrust laws.
“Agreements made by patent holders are subject to antitrust scrutiny, particularly where, as here, they eliminate potential competition by splitting monopoly rents with would-be competitors,” asserted the FTC in its brief.
“If the challenger is offering a commitment to stay out of the market for a specified time, it follows that the payment is to secure exclusion of a potential competitor.” That’s an unlawful market allocation arrangement, the FTC asserts.
The FTC noted that the Hatch-Waxman Act specifically encourages generic drug makers to challenge weak or narrow patents. “The court’s rule would negate such challenges by allowing a branded company simply to pay generic filers to stay out of the market until the patent expires. Economic realities make such deals irresistible as long as they are condoned by the courts,” according to the FTC.
The brief was penned by FTC General Counsel Willard Tom, Deputy General Counsel for Litigation John Daly, and Lawrence DeMille-Wagman, assistant general counsel for litigation.
Schering is represented by Covington & Burling’s John Nields, Jr, Alan Wiseman and Thomas A. Isaacson; Charles Loughlin of Baker Botts; and William O’Shaughnessy of McCarter & English.
Upsher-Smith has retained William Goydan of Wolff & Samson and Christopher Curran of White & Case. Wyeth hired Robert Michels of Winston & Strawn and Brian McMahon of Gibbons.
The plaintiffs lawyers include Berger & Montague; Cohn Lifland Pearlman Hermann & Knopf; Garwin Gerstein & Fisher; Odom & Des Roches; Heim Payne & Chorush and Percy Smith & Foote.