Academic journal article Stanford Journal of Law, Business & Finance

Antitrust Liability for Pharmaceutical Patent Settlements after Tamoxifen and Schering-Plough

Academic journal article Stanford Journal of Law, Business & Finance

Antitrust Liability for Pharmaceutical Patent Settlements after Tamoxifen and Schering-Plough

Article excerpt


The petition for a writ of certiorari in the case of FTC v. Schering-Plough Corp. produced a relatively bizarre situation. The petition was brought by the Federal Trade Commission (FTC), one of the two government agencies responsible for enforcing the nation's antitrust laws.1 The petition was then opposed, by the Department of Justice, the other agency responsible for enforcing the antitrust laws, in an amicus brief submitted by the Solicitor General.2 The Solicitor General generally controls most federal government litigation before the Supreme Court, even on behalf of independent agencies like the FTC. 3 The government's seemingly schizophrenic position in Schering-Plough exemplifies the confusion surrounding the central issue in the case: the standard for imposing antitrust liability on pharmaceutical patent settlements involving payments from patent holders to potential generic entrants in exchange for delayed entry.

This confusion is certainly not from lack of attention. The FTC has launched a full-blown investigation into this type of settlement, resulting in a number of enforcement actions.4 The plaintiff's bar has followed with a barrage of private antitrust suits, and three federal Circuit Courts of Appeal have confronted the issue.5 Countless scholarly articles have debated the legal and economic implications of this class of settlement.6 The FDA modified its generic drug approval rules, and Congress implemented several significant changes to the special statutory framework that governs pharmaceutical patents.7

The law, however, remains in flux. Not only is there a significant circuit split - with the Sixth Circuit applying a rule of per se illegality8 and the Second Circuit finding virtual per se legality9 - there also appears to be a fissure within and among the government's legislative and executive branches. The FTC has actively investigated and aggressively prosecuted these arrangements, and Congress has signaled its concern through the Hatch-Waxman reforms contained in the Medicare Modernization Act, but the Department of Justice's position remains rather murky. The Solicitor General has filed briefs opposing certiorari in both the Schering-Plough and Cardizem cases, arguing that neither case presented an "appropriate" opportunity for the Supreme Court to consider the antitrust standards for this class of patent settlement.10 At the same time, the Solicitor General's briefs recognize that these cases, even if their particular factual circumstances do not present the ideal framework for Supreme Court review, raise "important and complex issues" that remain unresolved.11

This paper seeks to provide some order to this chaos. Part I begins with a more thorough outline of the legislative, regulatory, and legal developments. Although the Hatch-Waxman reforms and the FTC's vigorous enforcement effort have significantly reduced the incidence of claims asserting anti-competitive settlements, the emerging trend of virtual per se legality threatens to undermine the FTC's ability to scrutinize this class of settlement effectively. Part II evaluates the economic and policy arguments advanced in defense of exclusion payments. Even under the most generous possible interpretation of these models, the rule suggested by the Eleventh Circuit and adopted by the Second Circuit is the wrong approach. I propose a different rule in Part III: a presumption of illegality under a "truncated" or "quick look" rule-of-reason methodology. Although there are a range of sensible rules suggested by other commentators, a rule that forces the defendants to prove why they could not have reasonably structured the settlement in a less restrictive way would allow courts to triage between anti-competitive and pro-competitive settlements most efficiently.

I. Overview and Recent Developments

A. The Hatch-Waxman Framework for Pharmaceutical Patents

The Drug Price Competition and Patent Term Restoration Act,12 commonly known as the Hatch-Waxman Act, created a specialized incentive scheme for the pharmaceutical industry, aiming to protect the incentives for drug discovery while encouraging the timely entry of bioequivalent generic drugs. …

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