At the request of the Federal Trade Commission, the Solicitor General of the United States petitioned the U.S. Supreme Court to review a recent federal appeals court ruling concerning the FTC’s case against a “pay-for-delay” agreement. The petition for certiorari, the mechanism for asking for the Supreme Court to review a case, argues that the agreement that postponed generic competition for the testosterone-replacement drug AndroGel is anti-competitive and should not be legal. The Supreme Court case is Federal Trade Commission v. Watson Pharmaceuticals, Inc., No. 12-416.
This matter began in February 2, 2009, when the FTC filed a complaint in federal district court challenging agreements in which Solvay Pharmaceuticals, Inc. paid generic drug makers Watson Pharmaceuticals, Inc., Paddock Laboratories, Inc., and Par Pharmaceutical Companies, Inc. to delay generic competition to Solvay’s branded testosterone-replacement drug, a prescription pharmaceutical with annual sales of more than $400 million.
“At a time of escalating health care costs, these unlawful agreements deny patients the benefit of competition between branded and generic pharmaceuticals and ultimately cost consumers hundreds of millions of dollars a year,” said then Acting FTC Bureau of Competition Director David P. Wales upon the filing of the 2009 complaint.
According to the original FTC complaint, which was filed in the United States District Court for the Central District of California, Watson and Par, via its partner Paddock Laboratories, each sought regulatory approval from the FDA to market generic versions of AndroGel. In their FDA filings, both companies certified that their products did not infringe the only patent Solvay had relating to AndroGel, and that the patent was invalid. The complaint charges that Solvay agreed to pay the generic companies to abandon their patent challenges and agree not to bring a generic AndroGel product to market for nine years, until 2015.
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To many it may seem obvious that a pay to delay plan would be anti-competitive and illegal. Not so fast! Thanks to the byzantine legal rules created by the Hatch-Waxman Act, the brand name owner was doing nothing more than what seems to explicitly be authorized by the law.
Decades ago Congress passed the Hatch-Waxman Act to encourage generic manufacturers to challenge patents that either are invalid or narrow enough to be designed around. The legislation has worked, but not without unintended consequences. Studies have shown that generic manufacturers have prevailed in the majority of patent challenges, which results in generic entry into the marketplace well before patent expiration. This leads to significantly lower prices and huge savings for patients and the health care system, which is what Congress wanted to encourage. So what are the unintended consequences? Simply put, gaming of the system within the rules of the system.
In May 2003, Watson and Paddock, which partnered with Par, each filed applications for approval to market generic versions of AndroGel with the Food and Drug Administration (FDA). Solvay’s patent on Androgel had been issued in January 2003, with an expiration date of August 2020. By early 2006, Watson had received final approval to market its generic product. Solvay then agreed to pay Watson and Par a share of its AndroGel profits to abandon their patent challenges and agree to delay generic entry until 2015. As a result, the original FTC complaint charged the defendants with cooperating on the sale of AndroGel and sharing the monopoly profits, rather than competing.
After the case was filed in the Central District of California, it was transferred to the U.S. District Court for the Northern District of Georgia, which dismissed the FTC’s complaint. The FTC appealed to the U.S. Court of Appeals for the Eleventh Circuit on June 10, 2010. That court upheld the District Court’s ruling on April 25, 2012. The FTC vote authorizing the staff to request that the Solicitor General file the petition for certiorari with the Supreme Court was 5-0.
The FTC cert. petition sets forth the question presented as follows:
Federal competition law generally prohibits an incumbent firm from agreeing to pay a potential competitor to stay out of the market. See Palmer v. BRG of Ga., Inc., 498 U.S. 46, 49-50 (1990). This case concerns agreements between (1) the manufacturer of a brand- name drug on which the manufacturer assertedly holds a patent, and (2) potential generic competitors who, in response to patent-infringement litigation brought against them by the manufacturer, defended on the grounds that their products would not infringe the patent and that the patent was invalid. The patent litigation culminated in a settlement through which the seller of the brand-name drug agreed to pay its would-be generic competitors tens of millions of dollars annually, and those competitors agreed not to sell competing generic drugs for a number of years. Settlements containing that combination of terms are commonly known as “reverse payment” agreements. The question presented is as follows:
Whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the court below held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit has held).
According to Michael Carrier, a professor of law at Rutgers School of Law (Camden), the Supreme Court has for a decade refused to get involved in cases where reverse payments have been alleged to violate U.S. antitrust law. In fact, the overwhelming majority of courts that have heard such challenges have found no role for antitrust scrutiny, but recently that changed. The Third Circuit in July did find a reverse payment was “prima facie evidence of an unreasonable restraint of trade.” For more on this case see Professor Carrier’s article, which we published earlier this year — Reverse Payment Homerun for Pharma Antitrust Enforcement.
So what will become of this latest request for the Supreme Court to get involved? Who knows? Anyone that tells you they know what the Supreme Court will do is just guessing, or delusional. If I had a gun placed at my head and I had to predict I would say that the Supreme Court does not get involved. As unseemly as it may seem this type of activity is within the bounds of Hatch-Waxman. Congress well knows of the so-called Hatch-Waxman gaming and has done nothing about it whatsoever. In fact, attempts to do anything have always failed. This would certainly mitigate against Supreme Court involvement.
Of course, this Supreme Court does strange things, particularly when patents are involved. They have shown a great interest in all things patent in recent years, even taking one absolutely insignificant case that will affect virtually no one. See Jump the Shark Patent Style and Finding a Nut: Supremes Get a Patent Case Right! And now with at least one regional Court of Appeals finding that reverse payments are a violation there is a split among the Circuits, which is one factor in favor of Supreme Court review. Further, this is a patent case not arriving from the Federal Circuit, so there is only a patent subplot to an antitrust matter; a peculiar presentation of a patent issue to say the least. What does this mean? It means I can make a rational argument suggesting the Supreme Court will get involved. It has all the makings of a political thriller that should be left to the policy makers, which seems to be so enticing that this Supreme Court just can’t resist.
So flip a coin if you want to figure out what comes next. History says the Supreme Court won’t get involved, but eventually this issue will be too tempting for this Court not to want to weigh in. Is that time now? Maybe.
One of the greatest tragedies of Supreme Court jurisprudence today is that no one knows what, or if, the Supreme Court will do anything. The fact that completely rational arguments for and against the Supreme Court getting involved can be made is at the heart of what the Supreme Court is doing wrong. There is no reason to compromise any more when there is always a chance that this or that shinny object will catch the eye of enough of the Justices on the Supreme Court. This reality makes the law being extremely volatile and unpredictable in a wide array of substantive areas. Hardly what you should strive for in a functioning legal system.