By Kevin E. Noonan --
The Supreme Court granted certiorari Friday in Federal Trade Commission v. Watson Pharmaceuticals, Inc., one of two cases with certiorari petitions before the Court relating to reverse payment settlement agreements in ANDA litigation under the Hatch Waxman Act. (The petition in the other case, In re K-Dur Antitrust Litigation, was undecided.) The Court's certiorari grant marks the culmination of almost a decade of effort by the Federal Trade Commission to get the case before the Court; what clinched the effort this time was the decision in the K-Dur case by the Third Circuit in favor of the FTC's position, finding such settlements to be presumptively anticompetitive and subject to a "rule of reason" antitrust analysis. This result was contrary to decisions in the 11th Circuit (Valley Drug Co. v. Geneva Pharmaceuticals, Inc., 344 F.3d 1294 (11th Cir. 2003) and Schering-Plough Corp. v. Federal Trade Commission, 402 F.3d 1056 (11th Cir. 2005)); 2nd Circuit (In re Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d Cir. 2006) and Arkansas Carpenters Health & Welfare Fund v. Bayer AG, 604 F.3d 98, 105 (2d Cir. 2010)); and the Federal Circuit (In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F.3d 1323 (Fed. Cir. 2008)) that such agreements are legal provided that they stay within the legitimate bounds of the patent grant (applying the "scope of the patent" test). (It should be noted that the lone appellate exception (before K-Dur), In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003), involved different facts leading to the conclusion that there was anticompetitive behavior.)
The Question Presented in the FTC's successful cert. petition is as follows:
Whether reverse-payment agreements are per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud (as the court below held), or instead are presumptively anticompetitive and unlawful (as the Third Circuit has held)
The FTC petitioned the Court to preferentially grant certiorari in the Watson case, asserting that the Watson case provides a "superior vehicle" for Supreme Court review, supported by four arguments. First, the brief argued, the K-Dur case is a private cause of action (no matter how encouraged and supported by the FTC) and the Watson case is an FTC enforcement action, brought by the government agency "charged by Congress with challenging unfair methods of competition, see 15 U.S.C. 45, and responsible for reviewing agreements settling litigation under the Hatch-Waxman Amendments." "The Court would benefit from the experienced presentation that the FTC, represented by the Solicitor General, would offer as a party" rather than an amicus, the brief argues. Unmentioned are the procedural advantages of being a petitioner rather than an amicus in framing and presenting the arguments to the Court; the private plaintiffs were useful in the matter below but now that policy is to be decided, the government wants to control how the case is presented to the Court.
The FTC's second argument was that this case has a "simpler" procedural history, arising from a motion to dismiss under Fed. R. Civ. Pro. 12(b)(6) rather than from a grant of a summary judgment motion. Of course, unmentioned in the brief is the consequence that this case is devoid of the extensive record that exists in the K-Dur case, both before the Commission as well as in the District Court and the Third Circuit, and also the proceedings in parallel litigation in the 11th Circuit where the Court came to the contrary conclusion.
The third argument set forth by the FTC was that the K-Dur case is about post hoc damages (the agreements expired long ago), whereas the Watson case is about injunctive relief on agreements that will keep the generic parties off the market until 2015. "That makes this case the more attractive vehicle because whatever uncertainties may arise in fixing the damages caused by a reverse-payment agreement -- a question no court of appeals has confronted or passed upon -- the FTC unquestionably will be entitled to the remedy of an injunction if it proves that the reverse-payment agreements here are unfair methods of competition," is the way the brief summarized the FTC's position.
The FTC's fourth and final argument was that the K-Dur case does not involve a Paragraph IV allegation of invalidity. However, the grounds for deciding whether the agreement is anticompetitive and thus illegal should not depend on whether the product does not infringe or the patent is invalid; those considerations are only relevant to the type of arguments FTC petitioner wants to make, which at root are that the litigation is based on a "bad" patent and thus the patent should not be entitled to the presumption of validity.
These reasons may have had something to do with the Court's decision to grant cert. in the Watson case rather than the K-Dur case; the circuit split provoked support for the Court to grant cert. in order to resolve it from branded and generic pharmaceutical companies, industry and patient groups and other amici, all unanimously advocating the certiorari grant. But perhaps the best reason for the Court's choice is that the FTC did not prevail below, and taking the Watson case gives the Court the opportunity to reverse. This reasoning suggests that the Court may engage in another round of "everybody knows" jurisprudence, wherein the "conventional wisdom" indicates that reverse payment settlement agreements should be anticompetitive (even in the face of affirmative evidence that they are not). Once again the Court will hear the different perspectives of producers of technology and its consumers, and once again the simple will be at odds with the complex (and reality). And once again we will get to see what position provides the best arguments, and which one prevails (which are not necessarily the same thing).