Pharmaceutical Reverse Payment Settlements: Presumptions, Procedural Burdens, and Covenants Not to Sue Generic Drug Manufacturers

Article excerpt

I. INTRODUCTION: PHARMACEUTICAL SETTLEMENTS: PRESUMPTIONS, PROCEDURAL BURDENS, AND COVENANTS NOT TO SUE GENERIC DRUG MANUFACTURERS

The Santa Clara University Computer and High-Tech Law Journal (CHTLJ) invited me to submit this Article to reflect on the Journal's contributions to antitrust law during the past five years as we celebrate the Journal's silver anniversary. I congratulate the CHTLJ for its many contributions to the development of the law. The themes explored in CHTLJ articles regarding antitrust and competition law--conceptualizing the purpose of antitrust law, whether to protect consumers and competition or to promote efficiency, and the dichotomous construction of those goals--the between contract, intellectual property, regulation, and technology, and their effects on competition, innovation, and consumer choice--resonate for scholars, regulators, businesses, the legal community and consumers attempting to resolve antitrust disputes in light of the laws, policies and themes that animate them.

This Article analyzes recent antitrust law developments regarding agreements between pharmaceutical patent holders and generic drug manufacturers that require a generic manufacturer to delay its market entry in exchange for a payment or other consideration from the patent holder (reverse settlement agreements). A predictable consequence of settlements that delay the marketing of a generic drug is that prices for the patented drug will remain higher than if the generic competitor had prevailed in its challenge to the patent's validity or the patent holder had failed to show that the generic infringed on its patent. Analysis of the legality of these settlements has huge consequences for drug competition, health care costs, the average American family budget, the law, and public policy.

The Federal Trade Commission (FTC) and third-party plaintiffs have alleged that many of these agreements are anticompetitive and violate the FTC Act, which prohibits unfair methods of competition, as well as unfair and deceptive practices affecting interstate commerce. (2) These settlements have also been challenged as a violation of the Section I of the Sherman Act which prohibits "[e]very contract, combination in form of trust or otherwise or conspiracy in restraint of trade or commerce among the several States, or with foreign nations." (3) The standards of the Sherman Act and the FTC Act are far more nuanced than their broad statutory charges indicate, leaving courts to determine whether the settlement is a per se violation of the antitrust laws, or to balance the potential anticompetitive effects of reverse payment settlements against their alleged pro-competitive benefits under a rule of reason standard, while also considering the effect of the patents on antitrust liability.

Recent court decisions have refused to condemn such settlements as a violation of antitrust laws, instead finding protection for the parties' agreement under the scope of the patent rights at issue. Lorelei Ritchie's CHTLJ article observed that contract law is increasingly being used to solve intellectual property disputes, and that while contract law "typically allows parties to devise their own arrangements, there are certain overriding normative restrictions in intellectual property law primarily involving misuse, antitrust, estoppel, and consumer protection." (4) The multi-billion dollar question remains whether pharmaceutical reverse payment settlements are illegal and violate antitrust and unfair competition laws.

Section II of this article explores the features of the HatchWaxman Act (HWA) that authorized the expedited process for Food and Drug Administration (FDA) approval of generic drugs, the abbreviated new drug application (ANDA), (5) and the amendments to the HWA in the Medicare Prescription Drug, Improvement, and Modernization Act (MMA). (6) It contends that the MMA amendments have not achieved their goal of removing barriers to competition and lower drug prices erected and fortified by reverse payment settlements with potential generic competitors, despite high hopes to the contrary. …