The Federal Trade Commission has taken the next step in its long battle against “reverse payment settlements” that some argue delay entry by generic pharmaceutical manufacturers. On February 13, 2008, the FTC filed a complaint against Cephalon, Inc., alleging that the company illegally

extended its monopoly over its sleep disorder drug, Provigil, by paying four generic drug manufacturers to delay entry as part of patent litigation settlements with each generic. According to the Commission, each of these four agreements is an unlawful act of monopolization.

The case, brought in the U.S. District Court in the District of Columbia, is extremely significant for

brand and generic manufacturers faced with these business and legal decisions. This litigation represents the latest move in an effort by the FTC to develop the law in this area, and the outcome of this litigation could significantly impact the terms under which brand and generic manufacturers may settle patent infringement litigation. Although circuit courts have addressed these issues, the law remains turbid regarding the circumstances under which a patent settlement that includes a payment to a generic and delays entry is unlawful. The law has become more favorable to reverse payment settlements, but FTC remains resolute in its position that the current direction of the law is wrong. The Cephalon complaint represents the FTC’s first effort to clarify the law in this area and

challenge a reverse payment settlement after the Eleventh Circuit ruled against the Commission in Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005), cert. denied, 126 S. Ct. 2929 (2006). The outcome of the case also may clarify the effect on the antitrust analysis of additional

terms – such as licenses to additional intellectual property, supply agreements, and co-development deals – that brand and generic manufacturers have included in settlement agreements since the Schering decision.