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Yet another federal circuit court has rejected the Federal Trade Commission's (FTC) view that so-called reverse payments in settlement agreements of patent infringement lawsuits brought under Paragraph 4 of the Hatch-Waxman Act necessarily raise antitrust concerns. This decision reflects a growing judicial consensus that such settlements are lawful if they provide the innovator with no greater power to exclude generic competition than the patent itself. Successful challenges to such agreements are, therefore, likely to be limited to those situations where: (a) the settlement agreement extends the patent holder's exclusivity beyond those resulting from the patent itself; or (b) there is some evidence of misconduct in obtaining the patent, sham litigation or, at the very minimum, calling into question the patent's validity.
Last week, in In re Ciprofloxacin Hydrochloride Antitrust Litigation, the United States Court of Appeals for the Federal Circuit found a settlement of a patent infringement lawsuit under the Hatch-Waxman Act to be lawful, even though the patent holder, Bayer AG, paid nearly $400 million to the alleged infringers. In re Ciprofloxacin Hydrochloride Antitrust Litigation, Civ. No. 2008-1998 (Fed. Cir., October 15, 2008). Despite that nearly $400 million payment, the Federal Circuit found no antitrust violation, largely because the settlement agreement at issue did not cause anticompetitive effects beyond those inherent in the patent. Id. at 21. Without evidence of sham litigation or misconduct in obtaining the patent, the exclusion of generic competitors was no greater than permissible under the patent and, therefore, lawful. Id.
This decision is one of several recent circuit court decisions rejecting the FTC's vigorous scrutiny of settlement agreements providing for payments from the patent-holder innovator to the generic infringer. Last year, the Supreme Court denied the FTC's request for certiorari with respect to the Eleventh Circuit's opinion in Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005), leaving the Eleventh Circuit's decision intact. Key to the Eleventh Circuit's reversal of the FTC's finding that the Schering settlements violated the antitrust laws was its view that, "[i]n the context of patent litigation, however, the anticompetitive effect may be no more broad than the patent's own exclusionary power. To expose those agreements to antitrust liability would 'obviously chill such settlements.'" 402 F.3d at 1063. Because the agreement did not exceed the scope of the patent and there was no evidence of any defect in the patent, there was no basis for concluding that the exclusionary effects of the settlement agreements were any greater than those resulting from the patent itself. Id. at 1066, 1076. See also In re Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d Cir. 2006) (finding that settlements of patent infringement, even those involving payments by the patent holder to the alleged infringer, do not violate the antitrust laws where the anticompetitive effects are no greater than that of the patent).
The Federal Circuit's agreed with the Second and Eleventh Circuit's view that the "zone of exclusion" of the patent as compared to settlements of infringement litigation is the paramount consideration. Ciprofloxacin at 17-19. There, Bayer AG settled its patent infringement lawsuit against several generic manufacturers in an agreement pursuant to which it ultimately paid more than $398 million to the alleged infringers. Several purchasing groups filed a class action challenging the settlement.
The Federal Circuit found no antitrust violation because "all anticompetitive effects of the settlement agreement are within the exclusionary power of the patent." Because the settlement did not exceed the exclusionary power of the patent, inquiry into the validity of the patent absent evidence of sham litigation or misconduct in obtaining the patent was inappropriate. Id. at 21. Patents are presumptively valid under federal law. Id  A mini-trial on the validity of patent in an antitrust challenge to a settlement was, therefore, improper. Id. at 20-21. Because plaintiffs lacked evidence of sham litigation or fraud before the PTO and the settlement agreement did not expand the exclusionary rights of the patent holder beyond the scope of the patent, the settlement agreement did not harm competition. Id.
Most antitrust settlements will still need to be filed with the agencies, since they likely would implicate "the manufacture, marketing or sale" of the innovator drug or the applicable generic drug. See Medicare Prescription Drug Improvement and Modernization Act of 2003. A settlement between the innovator company and the generic may be scrutinized under the antitrust laws if there are large payments from the innovator to the generic or the agreement causes delay of generic entry into the market.
Recent case law, however, suggests that, where a settlement does not exceed the patent's protections, at the very least, some evidence of the patent's invalidity, if not evidence of sham litigation or misconduct in obtaining the patent, will be required to demonstrate that the settlement violated the antitrust laws. Accordingly, even in the case of a reverse payment, a settlement will likely survive antitrust scrutiny if it does not delay generic entry beyond the life of the patent. Indeed, the "essence of the inquiry is whether the agreements restrict competition beyond the exclusionary zone of the patent." Id. at 19.