[author: Kevin E. Noonan]

The Pharmaceutical Research and Manufacturer's of America (PhRMA) have filed an amicus brief in support of a grant of certiorari by the Supreme Court in the K-Dur case (In re K-Dur Antitrust Litigation).  Not surprisingly, like the branded and generic drug makers, PhRMA argues that the Third Circuit's decision created a circuit split that unsettled the balance created by other circuit courts of appeal.  While generally making the same arguments in this regard as the briefs of the parties (and other amici), PhRMA adds a few particular nuances to these arguments that bear consideration.

The brief characterizes the Third Circuit's K-Dur decision as imposing an "unwarranted presumption of illegality" regarding reverse payment settlement agreements in ANDA litigation that will harm consumers.  The brief asserts its members interest in the litigation as stemming from investment in drug discovery, stating that its members invested "an estimated $49.5 billion in discovering and developing new medicines" in 2011, citing the list of PhRMA members appended to the brief.  It frames the issue the Court should consider as "whether innovator companies can lawfully settle Hatch-Waxman patent litigation on terms that restrict the alleged infringer's activities within the scope of the patent and also include a payment (or other consideration) to the alleged infringer."  The practical reality, according to the brief, is that these reverse payment settlement agreements are often the only way to settle ANDA litigation under the Hatch-Waxman Act, and thus should not be "presumptively suspect."  And the consequences of the decision ignoring these practical realities can be expected to be "protracted litigation and, in some instances, delay the introduction of generic medicines."

The brief echoes reasoning from the other circuit courts of appeal who found reverse payment settlement agreements to be free of antitrust liability on the grounds that courts cannot "restrict[] the ability of innovator companies to manage risk and avoid the costs and uncertainty of litigation" without "dramatically diminish[ing] incentives for innovation and product development."  These incentives are necessary, according to PhRMA's brief, because pharmaceutical drug development it time-consuming (taking from 10-15 years) and costly (averaging about $1.3 billion when the cost of drug development failures are taken into account), and anything that increases risk to potential return on investment (like the limitations imposed by the Third Circuit's decision) jeopardizes innovation to the consumers' detriment.

The brief calls this issue "tremendously important" to the pharmaceutical industry, because it upsets the "carefully balanced regulatory regime" under Hatch-Waxman Act.  Some of the reasons that limiting the ability of branded drug makers to manage litigation and business risk by reverse payment settlement agreements in ANDA litigation asserted by the brief have been cited before in decisions from other circuit courts of appeal in upholding these agreements.  For example, the brief cites the differences in relative risk between branded and generics between ANDA litigation and conventional patent infringement litigation, and that settlement permits market entry by generics before expiry of the innovator's patents, and that there are uncertainty costs imposed by litigation that are eliminated by the possibility of settlement.  PhRMA adds to that calculus by considering the generic side of the equation:  because generic drug makers have no risk of infringement liability, financial incentives for delaying product launch are necessary because there would otherwise be no incentive for the generic drug maker to settle (such payments "may provide the only reasonable terms on which a settlement can be achieved").  In this regard the brief cites 7th Circuit Judge Richard Posner, long a proponent of the "economy and law" school of thought centered at the University of Chicago, who has argued that a ban on reverse payment settlement agreements could itself be anticompetitive because it would reduce the generic challenger's incentives to bring a Paragraph IV challenge in the first place.  Also, according to the brief a "cash-strapped generic company" might need the reverse settlement as the only way to accommodate the costs of delayed entry.  For both parties, "deterring patent settlements and encouraging protracted litigation will increase costs and consume judicial resources, prolong uncertainty, deter innovation, delay activities to invent around patents, and, ultimately, harm consumers" according to the brief.  All of these arguments are supported by academic legal scholarship that is directly contradictory to the Third Circuit's decision and the FTC's continued legal challenges to reverse payment settlement agreements over the past decade.

PhMRA also mentions that "the FTC is now taking the broadest possible view of the Third Circuit's opinion -- disregarding the Eleventh Circuit's opinion directly to the contrary with respect to the very same agreements -- and claims it imposes a blanket prohibition on settlements containing any consideration whatsoever flowing from innovators to alleged patent infringers."  As an example, the PhRMA cites the FTC's brief in an antitrust action relating to a settlement agreement in ANDA litigation over the drug Effexor®.  According to the brief, the FTC has taken the position that an agreement where the innovator does not market its own authorized generic is the equivalent of a payment and hence anticompetitive (despite the fact, as noted in the brief, that the branded drug company will remain in competition with the generic under the terms of the agreement).  In addition, the brief cites statements by the FTC Chairman that if the Supreme Court refuses to grant certiorari the agency will just bring all its actions under the Clayton Act in district courts in the Third Circuit.  Even without this threat, the Third Circuit's opinion warrants Supreme Court review (and reversal) because of the concentration of ANDA litigation in that circuit; the brief cites 80 ANDA cases having been filed in 2012 in that circuit versus five ANDA suits brought in the other circuits combined.

The brief ends with a frank expression of the seriousness of these issues to PhRMA's members:  "The stakes are too high for the Third Circuit's rogue decision to go uncorrected."

Several other amici (including Bayer, the Washington Legal Foundation and the New York Intellectual Property Law Association) have filed briefs, which will be the subject of later posts.