“Preserve Access to Affordable Generics Act” Resurfaces in Senate; Patent Settlement Litigation Front Heats Up

By Kurt R. Karst –   

On the same day that the Senate Judiciary Committee held a hearing on “Oversight of the Enforcement of the Antitrust Laws,” at which Federal Trade Commission (“FTC”) Chairman Jon Leibowitz and U.S. Department of Justice (“DOJ”) Assistant Attorney General for the Antitrust Division Christine Varney testified (here and here) on, among other things, patent settlement agreements (what opponents call “pay-for-delay” agreements), Senators Herb Kohl (D-WI), Charles Grassley (R-IA), and Susan Collins (R-ME) proposed an amendment – SA 4332 – during the Senate’s consideration of the Tax Extenders Act (H.R. 4213) that could significantly curtail patent settlement agreements.  As we previously reported, H.R. 4213 is also being eyed as a vehicle for legislatively granting a patent term extension for U.S. Patent No. 5,196,404 covering The Medicines Company’s ANGIOMAX (bivalirudin).

SA 4332 appears to be identical to Sen. Kohl’s “Preserve Access to Affordable Generics Act” amendment, which was considered, but ultimately rejected, during debate of the Senate Health Care Reform Bill late last year.  That amendment was almost identical to the substitute amendment to S. 369, which was passed out of the Senate Judiciary Committee last year – see our previous post here. 

Like its predecessors, SA 4332 would amend the FTC Act to permit the FTC to “initiate a proceeding to enforce the provisions of [new Sec. 28] against the parties to any agreement resolving or settling, on a final or interim basis, a patent infringement claim, in connection with the sale of a drug product.”  Such agreements, if challenged, would be presumptively anticompetitive and unlawful unless it can be demonstrated “by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement.”  In addition, “[e]ach person, partnership or corporation that violates or assists in the violation of [new Sec. 28] shall forfeit and pay to the United States a civil penalty of not more than 3 times the gross revenue of the NDA holder from sales of the drug product that is the subject of the patent infringement claim for the period of the violation, starting with the date of the agreement.”  A summary of SA 4332 is available here. 

Senators Orrin Hatch (R-UT), Jon Kyl (R-AZ), John Cornyn (R-TX), and Tom Coburn (R-OK) previously criticized the legal presumption rule in S. 369.  A report on S. 369 issued earlier this year states that:

the bill would amount to a de facto per se ban on covered settlements—and would entail all of the evils attendant to a per se ban . . . . For a legal-presumption rule to work, however, the parties must be afforded a forum in which they can quickly and fairly test whether they have overcome the presumption and whether the agreement is valid.  Unfortunately, under the reported bill, settlements would be made presumptively unlawful, but the bill does not create a process for quickly resolving whether the agreement is unlawful.  The issue would not be resolved until the FTC brings an action to challenge the settlement, which could be years after the settlement was entered into.  Moreover, the current bill requires the brand and generic companies to rebut the presumption that the agreement is unlawful by clear and convincing evidence.  This is a heavy burden that is not appropriate for commercial litigation and that tilts the scales in a lawsuit sharply in the government’s favor. . . . By effectively preventing the parties from settling, it is likely that this bill will discourage generic drug companies from bringing challenges to brand companies’ patents in the first place—and as a result, the bill will ultimately reduce competition and raise prices for drugs that are currently subject to invalid or low-quality patents.

The introduction of SA 4332 comes on the heels of an April 2010 decision by a 3-judge panel of the U.S. Court of Appeals for the Second Circuit in In re: Ciprofloxacin Hydrochloride Antitrust Litigation.  As we previously reported, in that case, the Court affirmed a 2005 decision by the U.S. District Court for the Eastern District of New York to grant summary judgment for defendants (i.e., manufacturers of CIPRO (ciprofloxacin HCl) or generic versions of CIPRO) in an antitrust challenge to certain patent settlement agreements, but also invited further review of the case by the full Court, noting that “because of the ‘exceptional importance’ of the antitrust implications of reverse exclusionary payment settlements of patent infringement suits,” plaintiffs-appellants should petition for rehearing en banc.  Since issuing the decision, the Court has been petitioned for a rehearing en banc.  Several interested parties have filed amicus briefs in the case urging a rehearing by the full Court, including the FTC, DOJ, American Antitrust Institute, AARP/American Medical Association/The Public Patent Foundation, Inc., 34 State Attorneys General, AFSCME, and various consumer groups. 

The FTC is also appealing to the U.S. Court of Appeals for the Eleventh Circuit an April 2010 judgment related to a February 2010 order from the U.S. District Court for the Northern District of Georgia (Atlanta Division).  As we previously reported, in that case the district court largely dismissed multidistrict litigation brought by the FTC, direct purchasers, and indirect purchasers challenging certain agreements in which Solvay Pharmaceuticals, Inc. allegedly paid generic drug companies to delay generic competition to Solvay’s drug product ANDROGEL (testosterone gel).