In Federal Trade Commission v. Watson Pharmaceuticals Inc., the US Supreme Court will review the Federal Trade Commission’s finding that Solvay Pharmaceuticals Inc. and several generic drug makers violated the antitrust laws by agreeing that Solvay would pay the generic companies to forestall challenges to the patent protecting its popular testosterone-replacement drug AndroGel. The FTC has long argued that when a patent-owning drug company agrees to pay money to a generic manufacturer that requires the generic to drop a challenge to the patent, and wait to enter the market until some later agreed upon time, that consumers are harmed. The settlement, in the Commission’s view, amounts to an agreement to divide monopoly profits by restraining competition.
Until a recent Third Circuit decision struck down a similar deal, however, the Second, Eleventh, and Federal circuit courts had all upheld this type of patent settlement in the face of FTC and private antitrust challenges. They held that so long as the agreement did not exceed the scope of the patent, the settlement could not violate the antitrust laws. Because a patent generally permits a restraint on competition and settlement is a preferred means of resolving disputes, antitrust concerns would arise only when the patent at issue was either (1) obtained through fraud or (2) the owner instituted objectively unreasonable sham litigation. In the reverse payment cases, the courts have also suggested that attempting to block non-parties to the agreement from challenging the patent might also exceed the scope of the patent. But these courts have held that virtually nothing else would go too far in the context of a settlement agreement.
In reaching the opposite conclusion, the Third Circuit held that reverse payment settlements undermine Congress’s intent to spur generic competition, which it expressed in the Hatch-Waxman Act. That law allows generic companies to use patented information to obtain FDA approval sooner than would otherwise be possible.
The Court granted certiorari on the FTC’s petition for review of an Eleventh Circuit ruling that reverse payment generic drug settlements are legal as long as they do not exceed the scope of the patent. The Court did not mention two petitions asking it to review the Third Circuit’s contrary decision.
FTC Chairman Jon Leibowitz celebrated the Court’s decision. As he explained, the FTC has long contended that “[t]hese pay-for-delay deals are win-win for the drug companies but big losers for U.S. consumers and taxpayers.” The Commission estimates that these deals cost consumers $3.5 billion a year. He thus stated that the Commission is “glad that the Supreme Court will determine, once and for all, whether branded pharmaceutical companies should have free reign to pay off potential generic competitors to stay out of the market.”