Legal Setbacks and Legislative Inaction May Push the FTC to Consider “Plan C” to Address Patent Settlement Agreements

By Kurt R. Karst –      

Recent judicial setbacks for the Federal Trade Commission (“FTC’) in actions challenging patent settlement agreements (or what opponents call “pay-for-delay” or “reverse payment” agreements) and opposition from both Republicans and Democrats to the inclusion of the Preserve Access to Affordable Generics Act (S. 369) in the Fiscal Year 2011 Financial Services and General Government Appropriations Bill (S. 3677) may cause the FTC to consider “Plan C” to address such agreements, according to Commissioner J. Thomas Rosch.

During the World Generic Medicine Congress Americas 2010 earlier this month, Commissioner Rosch remarked that the FTC is mulling issuing its own rules next year that would shift the burden of proof to require companies to prove that patent settlement agreements are not anti-competitive.  In late July, the U.S. Senate Committee on Appropriations approved the inclusion of the Preserve Access to Affordable Generics Act in the report (Senate Report No. 111-238) accompanying S. 3677.  The legislation would make patent settlement agreements 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.”  The patent settlement provisions were added to the report accompanying S. 3677 after the Senate decided to drop the House patent settlement agreement provisions passed as part of a package of amendments to the War Funding Bill (H.R. 4899) – see our previous post here.

In September and October, some Republicans and Democrats sent separate letters (here and here) to their respective party leaders requesting that the provisions of S. 369 not be included in any appropriations bill this Congress.  The letters also note substantive concerns with the provisions of S. 369.  For example, the Republican letter alleges that S. 369 gives “excessive power over such settlements to the FTC – a power that the FTC has shown itself in the past to be unable to exercise in a responsible or economically rational manner – and that the bill would do serious violence to the Hatch-Waxman process for the market entry of generic drugs.”  It is unclear how an FTC “Plan C” to address patent settlement agreements would address such concerns. 

During his speech, titled “The Antitrust/Intellectual Property Interface: Thoughts on How To Best Wade Through the Thicket in the Pharmaceutical Context,” which primarily focused on patent settlement agreements, but also touched on myriad other issues, including patent use codes, authorized generics, citizen petitions, and so-called “product hopping,” Commissioner Rosch commented that although he supports a legislative fix to address patent settlement agreements – and specifically pending legislation (with the possible exception of the “clear and convincing” standard) – he thinks any legislation should stand or fall on its own merits.  According to Commissioner Rosch:

. . . . I believe a legislative fix is likely the only way to eliminate these anticompetitive settlements.  Nevertheless, where I depart from the Chairman and perhaps the rest of the Commission (although I can’t say for sure) is on process. In my view, the legislation should rise or fall on its own merit; put differently, I think tacking it on to the war funding bill is a terrible idea.  If the goal is to put money back in consumers’ pockets, then that is what we should be doing – not funding the war.

Commissioner Rosch also waded into the FTC’s challenge concerning a patent settlement agreement on generic ANDROGEL (testosterone gel) 1% (i.e., In re: AndroGel Antitrust Litigation), commenting that the case “should be winnable, not withstanding the popularly-held view that the FTC’s chances are slim . . . .” 

As we previously reported, this case stems from a February 2009 challenge by the FTC and the California Attorney General concerning Solvay’s ANDROGEL 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.  In February 2010, in a setback to the FTC, the U.S. District Court for the Northern District of Georgia (Atlanta Division) largely dismissed the case.  In June, the FTC filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit.  As  reported by our fellow bloggers over at PatentDocs, the defendants-appellees in the case recently filed a brief arguing that the district court’s judgment should be affirmed.