The FTC’s Latest Patent Settlement Report Will Serve as Fodder for the Commission’s Crusade Against Patent Settlement Agreements

By Kurt R. Karst –      

While we were at the American Conference Institute’s conference on Paragraph IV Disputes last week, the Federal Trade Commission (“FTC”) announced the publication of its annual summary of agreements filed with the Commission during Fiscal Year 2010 – “Agreements Filed with the Federal Trade Commission under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.”  According to the FTC, “[p]harmaceutical companies struck an unprecedented number of deals in Fiscal Year (FY) 2010 in which the manufacturers of branded products paid potential generic rivals and generic companies agreed to defer the introduction of lower-cost medicines for American consumers.”  The 2003 MMA requires pharmaceutical applicants – both brand and generic – to file with the FTC and the Assistant Attorney General certain agreements executed on or after January 7, 2004.  Since the enactment of the MMA, the FTC has published summaries of these agreements.  Copies of previous summaries are available here.

The FTC’s report says that in FY 2010 the Commission received 113 final resolutions of patent disputes between a brand and a generic, which is almost double the amount received in any previous fiscal year.  Of these 113 final resolutions, the number of potential pay-for-delay settlements (31 in FY 2010) and the number of potential pay-for-delay settlements involving first filers (26 in FY 2010) substantially increased over any previous year, as shown in the table below from the FTC’s report.

Notwithstanding the identification of “potential pay-for-delay” agreements, the FTC’s announcement of the annual summary, titled “FTC Staff Report Finds 60 Percent Increase in Pharmaceutical Industry Deals That Delay Consumers' Access to Lower-Cost Generic Drugs,” seems less tentative. 

The FY 2010 summary report will certainly show up again – probably sooner rather than later – as the FTC continues its crusade – both in the courts and in Congress – against patent settlement agreements.  (The FTC even has a website dedicated to the issue.) 

In March, the U.S. Supreme Court denied a Petition for Writ of Certiorari in Louisiana Wholesale Drug Co., Inc., et al. v. Bayer AG, et al. (Docket No. 10-762) concerning whether a patent settlement agreement involving manufacturers of Ciprofloxacin HCl (CIPRO) is per se lawful under the Sherman Act – see our previous post here. 

The FTC’s report could also add steam to Senator Herb Kohl’s (D-WI) efforts to push through Congress the Preserve Access to Affordable Generics Act, which, as we previously reported, was introduced once again earlier this year.  That bill would amend the Federal Trade Commission 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.”

Reaction to the FTC’s FY 2010 annual summary from the Generic Pharmaceutical Association (“GPhA”) was swift.  In a press release, GPhA said that “[t]he FTC is continuing to perpetuate the myth that pro-competitive, pro-consumer patent settlements are harmful to consumers — an unsubstantiated position that has repeatedly failed to receive support in both Congress and the Courts.”  GPhA cites two analyses – from the Royal Bank of Canada and Jonathan Orszag, former Director of the Office of Policy and Strategic Planning and member of President Clinton’s National Economic Council – supporting the proposition that patent settlement agreements are pro-competitive and increases opportunities for consumer savings.  The FTC’s analysis of such agreements (see our previous post here) estimates that patent settlement agreements “cost American consumers $3.5 billion per year – $35 billion over the next 10 years.”