I. BACKGROUND
Hatch-Waxman ANDA litigation settlements cause a stir unlike any other, both in the private and public sector, when they involve what is commonly known as “Pay for Delay.” As this moniker connotes, in such a settlement the branded company pays the ANDA filer, usually the generic company, to end its patent challenge and delay the generic’s entry to the market. Because these settlements appear to thwart the fundamental purpose of the Hatch-Waxman Act—supply cheaper drugs to the market quickly—they have been subject to increasing scrutiny by the United States Federal Trade Commission (“FTC”), Congress, and the courts. Indeed, President Obama’s healthcare reform bill attempted to ban these kinds of settlements outright. This article addresses particular factors in “pay-for-delay” settlements that are likely to receive FTC attention, summarizes major appellate court decisions regarding the legality of such settlements, and reviews ongoing legislative attempts to ban them.
II. FTC RED LIGHTS
Since the passage of the Medicare Modernization Act of 2003, the parties in ANDA litigation are required to submit any settlement papers to the FTC for its review, including those involving pay-for-delay. In reviewing these ANDA settlement agreements, the FTC generally looks for several factors in “pay for delay,” or reverse-payment settlements, in determining whether to bring suit against the parties to the settlement for antitrust violations. First, the FTC determines the nature of the original challenge by looking at sales of the drug. A settlement which keeps a blockbuster drug from having to face generic competition will engender significantly more scrutiny than an old, low-revenue, or niche product. Second, the FTC will determine whether there was an actual monetary payment from the branded company to the generic. A straightforward cash payment in the absence of any form of licensing agreement is more likely to bring FTC antitrust action against the settlement. It should be noted that, in their pursuit over antitrust violations stemming from pay-for-delay, the FTC can and will subpoena a company’s officers. A court has upheld such subpoenas as having a valid purpose.
III. COURT DECISIONS
A. In re Cardizem CD Antitrust Litigation (6th Circuit)
In In re Cardizem CD Antitrust Litigation1 , the branded company agreed to pay $10 million per quarter in exchange for a generics company refraining from marketing its Cardizem CD product after it had gained FDA approval2. On appeal, the United States Court of Appeals for the Sixth Circuit held that this settlement agreement constituted a restraint of trade that was illegal per se under section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, and under the corresponding state antitrust laws at issue3. Notably, HMR (the brand manufacturer) paid Andrx (the generic) $89.83 million in one year to keep generic Cardizem off the market. The agreement also served to delay the entry of other generic competitors due to Andrx’s 180-day exclusivity period4. The Court held that such an agreement is, in fact, a horizontal market allocation agreement, and, as such, is per se illegal under the Sherman Act and corresponding state laws5. The Court found that the agreement could not be fairly characterized as merely an attempt to enforce HMR’s patent rights or an interim settlement of the patent litigation, but was an illegal bolstering of the patent’s effectiveness6.
B. In re Cipro (2nd Circuit)
In a later case, In re Ciprofloxacin Antitrust Litigation, the facts of the settlement were essentially the same as in Cardizem: the branded company paid a lump sum in cash to the generic plus quarterly installments of cash in exchange for the generic dropping the patent challenge and keeping its product off the market. In an appeal brought by direct purchasers of the product, the Second Circuit came to an opposite conclusion than the Sixth Circuit: that this settlement was not per se illegal. The Court found that any potential advantages gained by the branded company through the anti-competitive effects of the settlement were within the appropriate scope of patent rights, and were therefore permissible. The Court did, however, take the unusual step of inviting the parties to petition for a rehearing en banc with the purpose of allowing the full court to review, and possibly overturn, the precedent that forced the Court’s hand in finding that this settlement was not a violation of the antitrust laws.
C. In re Cipro (Federal Circuit)
In a related suit brought by the indirect purchasers of Ciprofloxacin, the Federal Circuit came to essentially the same conclusion as the Second Circuit: the settlement agreement was not a violation of the antitrust laws, and was a permissible settlement. The Federal Circuit, applying the Rule of Reason analysis, found that the settlement was not illegal. The Court upheld the settlement because it did not prevent further generic challenges to the patent, and furthermore, any anti-competitive effects caused by the agreement were within the exclusionary zone of the patent and could not be redressed by the federal antitrust laws.
D. Cephalon Consolidated Litigation (E.D. Pennsylvania.)
In the Cephalon consolidated antitrust litigation, the brand name manufacturer, Cephalon, paid several generics to end their patent challenge and not enter the market for the drug Provigil. The generics received over $200 million in cash for this agreement. The FTC and several other generics filed suit alleging antitrust violations under the Sherman Act.
Federal District Judge Goldberg refused to dismiss the case, finding that the allegations supported an argument that the agreements granted greater rights to the patent holder than the patent laws allowed, and that plausible antitrust allegations had been asserted by the plaintiffs. In his opinion, Judge Goldberg summarized the pertinent reverse payment cases in all U.S. judicial circuits to date, found that a framework exists to determine if a reverse payment agreement is in violation of the antitrust laws, and concluded that this issue should be addressed later in the case at the summary judgment stage and not in preliminary motions.
IV. LEGISLATIVE ATTEMPTS TO BAN PAY-FOR-DELAY
Congress has made several attempts to ban pay-for-delay settlements, but these efforts thus far have been unsuccessful. For example, an anti-pay for delay provision was originally in President Obama’s recent Healthcare Reform Bill, but was removed prior to the bill being passed. Most recently, in early July 2010, a provision was inserted into a supplemental appropriations bill in the U.S. House of Representatives which would allow the FTC to bring an antitrust action against any companies entering into a settlement agreement resolving patent infringement claims in connection with the sale of any drug if the agreement has "anticompetitive effects." A companion bill was also introduced in the U.S. Senate.
V. CONCLUSION
Settlements are an essential tool in furthering the goals of Hatch-Waxman; and an across-the-board ban would thwart these efforts. However, given the impact—positive or negative—“pay-for-delay” arrangements could have on the drug market and on the market position of subsequent ANDA filers, Congress and/or the Supreme Court needs to clarify the appropriate boundaries of these kinds of ANDA settlements.
1. 332 F.3d 896 (6th Cir. 2003).
2. Id. at 899.
3. Id. at 900.
4. Id. at 907.
5. Id.
6. Id.
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