Academic journal article Northwestern Journal of Technology and Intellectual Property

In Re K-Dur Antitrust Litigation: Reopening the Door for Pharmaceutical Competition

Academic journal article Northwestern Journal of Technology and Intellectual Property

In Re K-Dur Antitrust Litigation: Reopening the Door for Pharmaceutical Competition

Article excerpt

¶1 One of the most controversial legal questions in the pharmaceutical industry today concerns settlements of patent infringement suits between branded and generic drug companies.1 These settlements, which are byproducts of the Hatch-Waxman Act, involve payments from the branded manufacturer to the generic drug company in exchange for the generic company staying offthe market for a period of time.2 In effect, the Act creates a financial incentive for branded manufacturers of drugs to settle their patent infringement claims by paying generic manufacturers to refrain from selling their product. These settlements are often called reverse-payment settlements because the plaintiffin the patent infringement suit, the branded company, pays the defendant, the generic company. They are also sometimes referred to as pay-for-delay settlements, although this is an arguably loaded name.3

¶2 The D.C. Circuit and Sixth Circuit were the first to address reverse-payment settlements, but the opinions were inconclusive.4 In Andrx Pharmaceuticals, the D.C. Circuit dismissed the case on the pleadings.5 In In re Cardizem CD Antitrust Litigation, the Sixth Circuit's precise holding is unclear because the agreement at issue involved products not covered by the challenged patent.6

¶3 The Second, Eleventh, and Federal Circuits decided this issue next and established a judicial policy favoring reverse-payment settlements among federal courts of appeals. These circuits made it clear in decisions issued between 2003 and 2008 that reversepayment settlements are not prohibited by the antitrust laws as long as the settlement falls within the "scope of the patent."7 They agreed that patents confer the right to exclude others from "profiting from the patented invention" and stopping competitors from marketing the products to which the patents apply is an exercise of that right.8 Therefore, reverse-payment settlements are not subject to antitrust scrutiny so long as the agreedupon delay in marketing the allegedly infringing generic does not extend beyond the patent-protection period.9 The approach used by these Courts assumes the underlying patent held by the branded company is "not only valid but infringed."10 Applying the scope of the patent test, numerous settlements of this type have been found valid under antitrust laws in these circuits.11

¶4 The Third Circuit's July 16, 2012 decision in In re K-Dur Antitrust Litigation is a dramatic departure from the standard set by its sister circuits for resolving the validity of reverse-payment agreements arising under the Hatch-Waxman Act.12 The Third Circuit, in a unanimous panel decision, squarely rejected the scope of the patent test used by the Second, Eleventh, and Federal Circuits and instead adopted a quick look rule of reason approach.13 The Third Circuit took issue with the scope of the patent test's almost irrefutable presumption of patent validity.14 As a move toward stricter scrutiny, the quick look rule looks to the "economic realities of the reverse payment settlement."15 The rule requires courts to:

treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade, which could be rebutted by showing that the payment (1) was for a purpose other than delayed entry [of generic competitors] or (2) offers some pro-competitive benefit.16

¶5 This Note begins in Part I with an overview of the Hatch-Waxman Act, its impact on the drug development process, and how the Act has spawned reverse-payment settlements between branded and generic pharmaceutical companies. Part II recounts the treatment of reverse-payment settlements in court and focuses on the decisions which gave rise to the scope of the patent test. In particular, the section will examine the evolution of the scope of the patent test and its increasing deference to the presumption of patent validity over time. Part III discusses the Third Circuit's holding in In re K-Dur Antitrust Litigation and how it represents a major step away from deference and towards stricter scrutiny. …

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