By
Kevin E. Noonan —

Joining
the parties and amici with clear
interests in resolving the circuit split created by the Third Circuit opinion
in the K-Dur case (In re K-Dur Antitrust Litigation), the Washington Legal
Foundation, self-described as having the aim of "promot[ing] economic
liberty, free enterprise, and a limited and accountable government," filed
an amicus brief urging the Supreme Court to grant certiorari.

The
WLF's brief opens by presenting its bona
fides on the issue of reverse payment settlement agreements, specifically
noting its participation as an amicus in both the Third Circuit's consideration
of the K-Dur reverse payment settlement agreement as well as in the Eleventh
Circuit's consideration of the same agreement in Schering-Plough Corp. v. Federal Trade Commission, 402 F.3d 1056 (Fed. Cir.
2005).  In the WLF's opinion, the Third
Circuit's decision "creates an intolerable conflict" wherein an
appellate circuit now exists that recognizes "substantially diminished
patent rights" for patentees.  Making the only argument that may prove persuasive, the brief argues
that the consequence will be to "stifle the incentives for generic drug
makers to compete with brand-name drug companies" in contravention of
Congress' intent in enacting both the antitrust laws and the Hatch-Waxman Act.

After
an (unnecessary) explication of the background of the case and the "scope
of the patent" rule adopted by three other Circuits that have considered
the legality of reverse payment settlement agreements (the Second, Eleventh and
Federal Circuits), the brief does highlight for the Court the fundamental
presumptions behind the Third Circuit's reasoning (presumptions created by the
FTC in its briefing and policy position papers cited in the Third Circuit
opinion).  Specifically, this reminder is
that "[t]he Third Circuit agreed with the FTC's position that 'there is no
need to consider the merits of the underlying patent suit because '[a]bsent
proof of other offsetting considerations, it is logical to conclude that the quid pro quo for the [reverse] payment
was an agreement by the generic to defer entry beyond the date that represents
an otherwise reasonable litigation compromise.''"  Regardless of the
soundness vel non of this logic, the
disregard for the merits of the patent infringement suit seems to beg the
question of whether the agreement is anticompetitive.

The
circuit split, and the FTC's avowed intention to take advantage of its
success in convincing the Third Circuit to agree with its view of reverse
payment settlement agreements by bringing antitrust actions preferentially in
district courts in the Third Circuit, "will distort innovation in the drug
industry," as well as being "grossly unfair" and "incompatible
with the national procedural scheme or [] generic drug entry [] under the
Hatch-Waxman Act."  The Third
Circuit's "misguided decision threatens to dampen significantly the
incentives that generic drug makers would otherwise have to challenge pioneer
patents and compete with brand name drug companies[,] by stifling the generic
drug maker' prospects for winning advantageous settlements" says the WLF's
brief, making the argument that settlement, as well as prevailing in ANDA
litigation, is a reasonable expectation for generic drug companies that
fulfills rather than frustrates Congress' intentions under the Hatch-Waxman
Act.  Thus, what would be anticompetitive
would be for the Court to adopt the Third Circuit's standard (and the further
expansions of this reasoning the FTC has adopted since the Third Circuit's K-Dur decision.  This case "provides the best vehicle"
to resolve the issue, the brief argues, because all parties (the branded and
generic companies who were parties to the reverse payment settlement agreement,
the antitrust plaintiffs, drug wholesalers and retailers and consumer groups,
and the FTC) that had participated had been "thoroughly represented" in the
case (an argument that can and will be contrasted with the FTC's position in
its certiorari petition in FTC v. Watson,
"the Androgel case").

In
its detailed argument in support of these general propositions, the WLF cites
Supreme Court precedent for the proposition that the patent grant provides
exclusive rights in order to "stimulate innovation and risk taking"
for developing new technologies ("Promoting the Progress [] of the Useful
Arts").  Part of these rights by
statute is the right to license, or refuse to license, the patented
technology.  35 U.S.C. §§
261, 271(d)(4)-(5).  All these rights,
and others in the statute, create "a statutory monopoly" the WLF
reminds the Court, citing Sears, Roebuck
& Co. v. Stiffel, 376 U.S. 225, 229 (1964), and Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S. 176,215
(1980).  And the brief cites Judge
Richard Posner of the 7th Circuit (who, despite recent intemperate
and unfounded criticisms of the patent systems certainly understands antitrust
law), sitting by designation in Asahi
Glass Co., Ltd. v. Pentech Pharms., Inc. for the proposition that:

A firm that has received a patent from the
patent office (and not by fraud . . .), and thus enjoys the presumption of
validity that attaches to an issued patent, is entitled to defend the patent's
validity in court, to sue alleged infringers, and to settle with them, whatever
its private doubts, unless a neutral observer would reasonably think either
that the patent was almost certain to be declared invalid, or the defendants
were almost certain to be found not to have infringed it, if the suit went to
judgment.  It is not 'bad faith' to
assert patent rights that one is not certain will be upheld in a suit foe
infringement pressed to judgment and to settle the suit to avoid risking the
loss of rights.  No one can be certain that he will prevail in a patent
suit."

289 F. Supp. 2d 986, 992-93 (N.D.
Ill 2003) (emphasis in original).  The
brief also reminds the Court that it has affirmed that settlement of a patent
suit is not, per se, "precluded
by the [Sherman] Act," citing Standard
Oil Co. v. U.S., 283 U.S. 163,171 (1931). 
Support for Judge Posner's reference to "fraud" can be found
in the Court's decision in Prof'l. Real
Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60
(1993), where only if a claim [in that case, to antitrust immunity under the Noerr-Pennington doctrine] is "objectively
baseless."

The
brief also argues that the "scope of the patent" test employed by
other circuits in assessing the legality of reverse payment settlement
agreements "preserves for the holders of pharmaceutical patents all the
same legal rights enjoyed by other patent holders," including of course
the right to settle patent infringement litigation.  Litigation is an integral part of the
Hatch-Waxman regime, the WLF argues, and part of that regime encourages "the
parties to resolve their patent disputes promptly through legal action"
including settlements of such suits.  The
brief cites the explication of the differences between ANDA litigation and
conventional patent infringement litigation set forth in the other appellate
court opinions to support its argument that settlement is consistent with the
Congressional aims embodied in the Hatch-Waxman Act.

The
WLF argues that the Third Circuit has shifted the burden to prove
precompetitive effects of reverse payment settlement agreements, rather than
the burden falling on challengers of these agreements to establish that they
are sufficiently anticompetitive to contravene the antitrust laws.  This amounts to per se antitrust liability in view of the Third Circuit's disregard
for the "merits of the underlying [patent] litigation," the brief
argues.  The patentee is thus precluded
from showing that in the absence of settlement it "would likely have
prevailed in enforcing its patent," which would mean that the settlement
was more competitive than pursuing litigation to its conclusion.  The brief also identifies the "suspicion"
inherent in the FTC's position adopted by the Third Circuit regarding payment
from the branded to the generic drug maker, but reminds the Court that there
will always be some "consideration" obtained by the generic drug
company as an incentive to settle ("[o]therwise the defendant would have
little or no reason to settle").

The
brief then completes the connection between the Third Circuit's decision and
the incentives created by the Hatch-Waxman Act, arguing that brand name drug
makers will have less incentive to invest in research and development through a
reduced ability to protect its "pioneer patents," and generic drug
makers will have less incentive to challenge patents protecting brand name
drugs because they will be compelled to pursue the litigation to its conclusion
(and in either case monies that could otherwise be used to fuel innovation is
used instead to pay litigation costs). 
Adoption of the Third Circuit's presumption that reverse payment
settlement agreements are anticompetitive and unlawful, requiring courts to
perform a "quick look" rule of reason analysis and placing the burden
on the patentee to establish the precompetitive nature of the agreement will have
the result of creating "a disincentive for genetic drug makers to compete
by challenging pharmaceutical patents in the first place" and "thus
ultimately decrease the availability
of low-cost drugs" (emphasis in opinion).  Bans on reverse payment settlement agreements will work this
disincentive by precluding a "date certain" (other than the patent
expiry date, which is only certain of the generic drug company does not
prevail) for early generic drug entry (and any reverse payment).  The result in the case at bar, generic drug
entry by several generic drug companies several years before the patent expires
is itself precompetitive (rendering any decision anticompetitive that would
foreclose the opportunity for such a settlement to be legal).

Finally,
the brief reminds the Court of the expansive scope of the FTC's appreciation of
the opportunity the Third Circuit decision has given it (and a prelude of how
the FTC will pursue the parties to such agreements) by citing the Commission's
amicus position in the Effexor®
case (In re Effecor XR Antitrust
Litigation, D.N.J. 2012).