Post details: Patent Settlements: Reverse Payments and Timing Market Entry by Generics

Patent Settlements: Reverse Payments and Timing Market Entry by Generics

Posted by Jay on August 22nd, 2006

As a general matter patent settlements are good. Once both sides have a reasonable estimate of expected outcomes, there is a strong desire to reduce litigation costs and simply work it out.

Pharmaceutical patent infringement settlements between pioneer drug companies and generic ones raise issues that are somewhat unique and pose new questions over which the courts seem unsettled. In late June 2006, the U.S. Supreme Court denied certiorari in FTC v. Schering-Plough and let a 11th Circuit ruling stand that the settlement agreements between Schering-Plough and two generic companies (Upsher-Smith and ESI Lederle) did not unreasonably restrain competition beyong the scope of the patent grant.

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There are other inconsistent appellate decisions. In 2003, the Sixth Circuit in the In re Cardizem CD Antitrust Litigation found an agreement between Andrx and HMR to be pre se illegal, and the 11th Circuit in Valley Drug v. Geneva Pharmaceuticals found a settlement between Abbott and Zenith and Geneva to be lawful.

These settlements involve some familiar terms. The generic company agrees to remain off the market for a period of time in return for a monetary payment (a so-called "reverse payment") from the pioneer drug company to the generic company.

Are these settlements simply an attempt to share supra-competitive profits? Are these settlements really any different from other patent settlements that may carve up market share and maintain supra-competitive pricing to be shared amongst a few players? What is the appropriate legal standard to be employed to analyze such pharmaceutical settlements? A rule of reason analysis or one that is aided by a rebuttable presumption against such settlements? As a theoretical matter, can we ever analyze such settlements fully unless some or all of these settlement terms are made public?

The New York Times has been carrying a series of stories the last few days about a deal between Apotex and Bristol-Myers Squibb and Sanofi-Aventis concerning the drug Plavix. A settlement among the three companies was rejected by government regulators last month, and now there are stories of secret terms and deals between Bristol-Myers and Apotex, and about attempts by Apotex to kill pharmaceutical innovation. We need to, at minimum, understand the terms of such agreements in more detail.

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