WSJ Stakes Out Position on Patent Settlements; Takes Issue with the FTC’s “Evangelical Zeal”

By Kurt R. Karst –      

In a short, but scathing opinion piece published in the October 5th Wall Street Journal (“WSJ”), the editors take on the Federal Trade Commission (“FTC”) and those Members of Congress who want to ban patent settlements between brand-name and generic drug companies (what opponents call “pay-for-delay” or “reverse payment” agreements) – or at least make them a very unattractive option – under the “Preserve Access to Affordable Generics Act.”  As we previously reported, the bill, which is currently included in the report accompanying the Fiscal Year 2011 Financial Services and General Government Appropriations Bill (S. 3677) that is under consideration in Congress, would make patent settlements presumptively anticompetitive and unlawful if challenged by the FTC unless it can be demonstrated “by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement.”  Some Senators have objected to the provisions, arguing that they would “do serious violence to the Hatch-Waxman process for the market entry of generic drugs,” and the Congressional Budget Office issued a cost estimate criticizing the estimated savings from the bill as “significantly overstated.”

The WSJ echoes the sentiments of those Members of Congress opposed to the “Preserve Access to Affordable Generics Act:” 

Reverse settlements expand the options for rationally ending patent disputes.  A brand-name company might settle to protect a high-risk investment even if it is convinced that its patent is strong, because anything can happen in litigation. Or the two sides might be at loggerheads.  No one can know in advance which side will prevail at trial, and a cash payment might be the only way to reach an agreement. . . .  [E]liminating reverse settlements will reduce the incentive to challenge patents at all.  If the only choice is an expensive litigation death match that lasts for years, fewer generic companies will sue under the probability that they will themselves face patent infringement suits.

The WSJ cites a January 2010 RBC Capital Markets report to make its point that patent settlements are a good thing; that is, that the patent settlement “status quo seems to be working better than anything today's Congress might produce.”  The RBC report found, among other things, that in cases that went to trial over the last three years, settlements occur on average 47% of the time.  Although many of those settlements did not involve a “reverse payment,” in those that did, “presumably payment was the only way to bridge the settlement gap and may have thus sped up generic entry,” according to the WSJ.

The WSJ is also critical of the FTC’s efforts to broker patent settlement deals – and in particular the FTC’s conduct called into question in FTC v. Bisaro.  As discussed in a recent Washington Legal Foundation Legal Opinion Letter, in that case, the FTC attempted to broker a deal between competing generic drug companies by forcing one of them to selectively waive or relinquish its 180-day exclusivity for a generic version of PROVIGIL (modafinil).  “It’s one thing for the [FTC] to litigate pay-for-delay cases, even dodgy ones, but quite another to actively attempt to broker deals in the drug business,” according to the WSJ.