FTC Issues FY 2012 Patent Settlement Report; Says a Record Number of Agreements Filed With “Pay-for-Delay” Potential

By Kurt R. Karst –      

The Federal Trade Commission (“FTC”) has announced the release of its annual summary of agreements (a.k.a. “drug patent settlement agreements,” “reverse payment agreements” or “pay-for-delay agreements”) filed with the Commission during the last fiscal year (Fiscal Year 2012): “Agreements Filed with the Federal Trade Commission under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.”  According to the FTC Staff Report, FY 2012 saw 140 final patent settlement agreements filed with the Commission, which is a decrease from the FY 2011 high of 156 agreements.  Forty (40) of the 140 agreements reportedly “contained a payment to a generic manufacturer and also restricted the generic’s ability to market its product,” thereby making them “potential pay-for-delay deals.”  In addition, 43 of the agreements reportedly involved ANDA sponsors eligible for 180-day exclusivity.  Below is a table from the FTC Staff Report showing how the FY 2012 figures stack up against the numbers from previous years.  (Our post on the FY 2011 report is here.)

Almost one half (19) of the agreements tagged by the FTC as “potential pay-for-delay deals” reportedly involved a so-called “No-AG,” or no Authorized Generic, agreement under which a brand-name drug company agrees not to launch an authorized generic to compete with a generic version of the product approved under an ANDA.  As we previously reported, in December 2012, the U.S. District Court for the District of New Jersey ruled in a case concerning LAMICTAL (lamotrigine) that “No-AG” agreements are not “reverse payments” subject to antitrust scrutiny.  Another case also before the U.S. District Court for the District of New Jersey, but involving EFFEXOR XR (venlafaxine HCl) Extended-release Tablets, has been stayed.

We’re always curious to see the FTC’s breakdown of the numbers each year, and particularly this year with the U.S. Supreme Court slated to hear Federal Trade Commission v. Watson Pharmaceuticals, Inc. (Docket No. 12-416), a drug patent settlement agreement case involving ANDROGEL (testosterone gel) (see our previous post here).  The case stems from a Complaint filed by the FTC alleging that Solvay and certain generic drug 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.  The U.S. District Court for the Northern District of Georgia found that the settlements are not an unreasonable restraint of trade under applicable law and that the FTC failed to state an antitrust claim.  In affirming the district court decision, the U.S. Court of Appeals for the Eleventh Circuit held that, “absent sham [patent] litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.” 

The U.S. Supreme Court has not yet decided whether or not to grant certiorari in Merck & Co., Inc. v. Louisiana Wholesale Drug Company, Inc. (Docket Nos. 12-245) and Upsher-Smith Laboratories, Inc. v. Louisiana Wholesale Drug Company, Inc. (Docket No. 12-265) concerning K-DUR (potassium chloride).  The K-DUR cases are on appeal after the U.S. Court of Appeals for the Third Circuit rejected in July 2012 in In re K-Dur Antitrust Litig., 686 F.3d 197 (3d Cir. 2012), the so-called “scope of the patent test” when considering whether drug patent settlement agreements involving cash payments and early entry dates violate the antitrust laws, and instead applied a “quick look rule of reason” analysis.  Under that analysis, “the finder of fact must treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade, which could be rebutted by showing that the payment (1) was for a purpose other than delayed entry or (2) offers some pro-competitive benefit.”

Although there has been quite a bit of activity in the courts as of late concerning drug patent settlement agreements, Congress has been relatively quiet after years of mulling (and ultimately not passing) multiple proposals to restrict (or effectively ban) such settlement agreements (see our FDA Legislation Tracker).  Perhaps the FTC Staff Report will bring out a new legislative proposal or cause some member of Congress to brush the dust off of an old proposal.  Or maybe Congress is sitting tight waiting to see how the U.S. Supreme Court tackles the issue.     

Updates:

• The Generic Pharmaceutical Association (“GPhA”) issued a press release responding to the FTC Staff Report, saying that “[t]he FTC is wrong on the facts, wrong on the public policy and wrong on the law. If successful, the FTC position would dramatically undermine the law of the land and cost patients and consumers billions of dollars every year.”  Instead, as in previous responses to FTC Staff Reports on drug patent settlement agreements, GPhA points to two analyses – one from the Royal Bank of Canada and another from Jonathan Orszag, former Director of the Office of Policy and Strategic Planning and member of President Clinton’s National Economic Council – to support the proposition that patent settlement agreements are pro-competitive and increase opportunities for consumer savings.
• Senators Amy Klobuchar (D-MN) and Chuck Grassley (R-IA) issued a press release saying that they plan to renew efforts to end drug patent settlement agreements.  Both Senators cosponsored the Preserve Access to Affordable Generics Act introdiced in the 112th Congress.