Introduction

On June 18, 2024, the Federal Trade Commission (“FTC”) unanimously agreed to submit a comment supporting a recent proposed U.S. Patent and Trademark Office (“PTO”) rule that would mandate the disclosure of all settlement agreements made between parties appearing before the Patent Trial and Appeal Board (“PTAB”). 

This move follows President Biden’s July 9, 2021 Executive Order on Promoting Competition in the American Economy (“2021 Executive Order”) directing agencies with overlapping jurisdiction to “cooperate fully in the exercise of their oversight authority” to further the enforcement of antitrust laws. Of particular relevance here, the 2021 Executive Order encouraged agencies “to consider whether to revise their position on the intersection of the intellectual property and antitrust laws” with the aim of ensuring that the intellectual property system strikes the right balance of incentivizing innovation while not unnecessarily reducing competition.  

What You Need to Know:

• The PTAB—created by the 2011 America Invents Act (“AIA”)—adjudicates several types of administrative challenges to the validity of granted patents, known as “post-grant proceedings.” 
• Currently, the PTO requires that litigants disclose any settlement agreement (including any collateral agreements) only if it is reached after the PTAB has instituted the relevant post-grant proceeding.
• By contrast, the proposed PTO rule would mandate disclosure of all pre- or post-institution settlement and/or collateral agreements.
• In the spirit of the 2021 Executive Order, the PTO and FTC contend that the PTO’s proposed rule would enhance the government’s ability to challenge unlawful, anticompetitive settlement agreements.

Background and Current Rules   

The AIA established certain post-grant proceedings to challenge the validity of a duly-issued patent, such as inter partes review, post-grant review, and derivation proceedings. A party that initiates a post-grant proceeding must file a petition for review by the PTAB, and the petition must disclose the “[patent] claim challenged, the grounds on which the challenge to each claim is based, and the evidence that supports the grounds for the challenge to each claim.” 35 U.S.C. § 312(a)(3). Upon review of the petition and any response by the patent holder, the PTAB then chooses whether or not to institute the proceeding.

According to the AIA, litigants must disclose settlement agreements made in connection with, or in contemplation of, the termination of a post-grant proceeding that has been instituted. 35 U.S.C. §§ 135(e), 317(b), 327(b). Neither the AIA nor any PTO rule currently requires the disclosure of a settlement agreement reached before institution of a post-grant proceeding.

PTO’s Proposed Rule and FTC’s Comment

On April 19, 2024, the PTO published a proposed rule amending 37 C.F.R. §§ 42.72 and 42.74 to require the disclosure of “[a]ny agreement or understanding between the parties made in connection with, or in contemplation of, the termination of a [post-grant] proceeding” when “fil[ing] a joint request for termination of a proceeding before institution.” 89 Fed. Reg. 28693, 28703 (proposed Apr. 19, 2024) (to be codified at 37 C.F.R. § 42). In so doing, the PTO acknowledged that the proposed rule “aligns with the policy set forth in” the 2021 Executive Order. Id. at 28697. The PTO noted that, since 2020, approximately 30 percent of post-grant proceedings settle, with pre-institution settlements accounting for over 50 percent of the settlements. Id. Accordingly, the PTO opined that these amendments provide it with “greater ability to monitor and curb potential abusive filings and . . . allows the USPTO to cooperate with other government agencies to police unfair, anticompetitive practices. Id.

The FTC fully supported the PTO’s proposed rule with its June 18 comment, nodding to the well-established potential for patent settlement agreements to violate antitrust laws. For instance, the FTC pointed to problematic “reverse-payment” patent settlements, where a pharmaceutical brand company pays its generic competitor to stay off the market instead of challenging the validity or infringement of the brand’s asserted patent. This practice led Congress to pass the Medicare Prescription, Drug, Improvement, and Modernization Act of 2003, which requires pharmaceutical companies to file patent settlements and related agreements with the FTC and DOJ. Leveraging that Congressional history and referencing the clear statutory requirement that parties disclose post-institution settlements (see 35 U.S.C. §§ 135(e), 317(b), 327(b)), the FTC opined in its comment that Congress intended to require the disclosure of settlements entered into at any stage of a post-grant proceeding. 

Takeaway

This is yet another recent example of the FTC’s more active monitoring of patentee activity, particularly in the pharmaceutical space. For example, the FTC over the last year has scrutinized brand pharmaceutical companies’ purported improper listing of patents in the FDA’s “Orange Book,” a practice that may raise drug prices according to the FTC. See, e.g., Sept. 23. 2020 Statement Concerning Brand Drug Manufacturers’ Improper Listing of Patents in the Orange Book. Patentees—especially in the pharmaceutical space—should therefore stay mindful of the additional scrutiny from not just the FTC, but also a more coordinated group of federal agencies that interact with patents.