FTC Annual Report Highlights the Commission’s Patent Settlement Efforts

By Kurt R. Karst –   

Last Friday, at the American Bar Association’s Section of Antitrust Law Spring Meeting in Washington, D.C., Federal Trade Commission (“FTC”) Chairman Jon Leibowitz issued the FTC’s 2010 Annual Report.  Among other things, including allegedly false or unsupported claims concerning dietary supplements, the 96-page report highlights the Commission’s efforts to stop allegedly anticompetitive “pay-for-delay” patent settlement agreements.

According to the FTC, “[o]ne of the Commission’s top priorities is putting an end to anticompetitive pay-for-delay patent settlement agreements.”  Indeed, the Commission commented in its January 2010 report, titled “Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions,” that there are “multiple investigations underway.”  President Obama’s proposed version of the Patient Protection Affordable Care Act (“PPACA”) included provisions that would have made patent settlement agreements, if challenged, presumptively anticompetitive and unlawful (although some groups wanted more); however, the provisions did not make it into the law.  The FTC expressed its deep disappointment and vowed to press ahead. 

The FTC’s Annual Report focuses on three cases the Commission has been involved in concerning patent settlement agreements:

• King Drug Co. of Florence, Inc. v. Cephalon, Inc. –  In this consolidated case concerning Cephalon, Inc.’s PROVIGIL (modafinil) that is pending in the U.S. District Court for the Eastern District of Pennsylvania, the FTC alleged that Cephalon engaged in anticompetitive conduct when the company paid four firms to refrain from selling generic versions of PROVIGIL until 2012.  In March 2010, the court denied various defendants’ motions to dismiss the case (except for selected counts brought under several state statutes), finding that the agreements may violate antitrust laws.

• In re: AndroGel Antitrust Litigation (No. II) – This case stems from a February 2009 challenge by the FTC and the California Attorney General concerning  Solvay Pharmaceuticals, Inc.’s ANDROGEL (testosterone gel) 1%, in which the FTC alleged that Solvay and generic companies violated various federal antitrust laws when they agreed to dismiss patent infringement litigation in exchange for a profit-sharing arrangement and provided the generic competitors would not launch their generic versions of ANDROGEL until 2015.  As we previously reported, in February 2010, in a setback to the Commission’s battle against patent settlement, the U.S. District Court for the Northern District of Georgia (Atlanta Division) largely dismissed the case.

• Federal Trade Commission v. Bristol-Myers Squibb Co. – In this first action involving § 1115 of the 2003 Medicare Modernization Act, and which stems from a 2003 FTC Order involving Bristol-Myers Squibb Company (“BMS”) and the reporting of patent settlement agreements, the FTC obtained a $2.1 million fine from BMS for failing to inform the FTC of agreements reached with Apotex, Inc., regarding potential generic competition to PLAVIX (clopidogrel bisulfate).  MMA § 1112(c) requires each party to a settlement of patent litigation to file such settlements with the FTC and the Department of Justice, and MMA § 1115 provides “a civil penalty of not more that $11,000, for each day” a company fails to comply with the submission requirement.  The FTC charged that, among other things, BMS failed to disclose (as part of a patent settlement with Apotex) that the company orally promised that it would not compete with Apotex during the first 180-days that Apotex marketed its generic version of PLAVIX.

Although not among the cases discussed in the FTC’s Annual Report, the U.S. District Court for the District of New Jersey’s recent order in In re K-Dur Antitrust Litigation to adopt a Special Master’s Report and Recommendation in the long-running patent settlement dispute concerning K-DUR (potassium chloride) is also noteworthy.  In that case, direct purchasers of K-DUR alleged that Merck & Co., Inc. (“Merck”) (formerly Schering-Plough Corporation) restricted competition in violation of the Sherman Act by settling patent infringement lawsuits against potential generic K-DUR entrants.  Merck filed a motion for summary judgment and the Special Master appointed to preside over the case recommended that the motion be granted.  The direct purchasers promptly appealed the decision.  The In re K-Dur Antitrust Litigation followed an FTC action against Schering challenging the same settlements.  In 2005, in Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005), the U.S. Court of Appeals for the Eleventh Circuit upheld a district court dismissal of that case.