The ultimate winner in the U.S. Supreme Court's decision that pharmaceutical pay-for-delay settlements are subject to antitrust review might not be the Federal Trade Commission or drug manufacturers, but rather the attorneys who represent them.
The court's ruling in FTC v. Actavis found a middle ground on the interplay between patent and antitrust law and created what lawyers in that space said was a subjective standard that made litigation over such settlements all the more likely.
And with the U.S. Court of Appeals for the Third Circuit being the only circuit to demonstrate prior to the Actavis ruling a skepticism regarding reverse-payment, or so-called "pay-for-delay," settlements, those attorneys predict that litigation will gravitate toward the Third Circuit.
"I foresee many of these cases now being brought in the Third Circuit, which has already shown a receptiveness to an antitrust analysis of pay-for-delay cases, unlike other circuits," said DLA Piper antitrust partner Carl Hittinger.
Hittinger noted that, at the time the Third Circuit ruled on this issue, the FTC said it would look to bring its cases in the circuit.
Dechert partner George Gordon, co-chairman of the firm's antitrust and life sciences practice groups, said there is certainly the potential to see more filings in the Third Circuit. He pointed out, however, that the FTC's statement about its plans to file in the circuit were made when that was the only court to have ruled favorably toward the FTC's position.
"Now that the Supreme Court has spoken, it makes filing in the Third Circuit less important, but I do think there will be a gravitational pull toward the Third Circuit because [its ruling] has helpful language in interpreting and applying the U.S. Supreme Court ruling," Gordon said, adding the Third Circuit could be seen as "more hospitable" to these cases.
Reverse-payment settlements come into play in patent infringement cases when a brand-name company sues a generic company that has attempted, under the Hatch-Waxman Act, to bring its own generic version of a brand-name drug to market. The generic company will use as its defense the argument that the brand company's patent is invalid or will not be infringed by the generic drug. The two companies then settle, with the brand company paying the generic company for the generic's agreement not to enter the market for an agreed-upon amount of time.
Several circuits, including the Eleventh Circuit, whose ruling went up to the Supreme Court in Actavis, have applied the scope-of-the-patent rule in determining these settlements are not subject to antitrust review as long as they don't extend rights outside of the scope of what the original patent intended. The Third Circuit, in its July 2012 ruling in In re K-Dur Antitrust Litigation, found reverse-payment settlements to be presumptively illegal and implemented a rule-of-reason analysis that required the defendant to show why the settlement didn't run afoul of antitrust laws.
In Actavis, the Supreme Court took a middle-of-the-road approach, rejecting the Eleventh Circuit's position that patent and not antitrust law applies, and also rejecting the Third Circuit's ruling that placed the burden solely on defendants to disprove the presumption that these settlements violate antitrust laws.
Instead, the high court, in a majority opinion written by Justice Stephen Breyer, ruled antitrust laws do apply through a rule-of-reason analysis that requires both the plaintiff to show why antitrust laws should apply and the defendant to show why the settlement is not anti-competitive, attorneys said.
For pharmaceutical companies, Gordon said, the good news is that the court left open the possibility of settling these cases using settlement payments that are appropriately tied to some actual benefit, such as paying for a licensing agreement that has the generic manufacturer market the brand-name drug.
The bad news for the pharmaceutical industry, however, is that the court's ruling is "bursting with opportunities for litigation," Gordon said. He said determining whether the settlement payment is appropriately valued to the benefit being offered the brand manufacturer leaves room for interpretation and, as a result, litigation.
"We're adding a layer of review that will cost parties money," said Hittinger, a regular columnist for The Legal. "Courts will be involved in assessing the purpose and justification of the settlement."
Regardless of where they are filed, the attorneys expect to see more challenges to reverse-payment settlements.
"The decision may well embolden not just the FTC, but also plaintiffs lawyers to challenge agreements," Gordon said.
Cozen O'Connor member Gerald J. Pappert previously served as general counsel of Cephalon Inc. and was involved in his company's participation in reverse-payment settlements and challenges to those settlements.
"The decision is likely to foster additional litigation, but I think, more importantly, uncertainty among the companies trying to resolve these cases," Pappert said. "I'm concerned that the decision will lead to a reluctance by parties to settle litigation for fear of then inviting subsequent challenges from the government."
Pappert said the result may be a further delay of generic drugs' entry into the market if these cases aren't settled. That is an outcome the majority would seem against, he said. Pappert said this case doesn't create a bright-line rule that offers companies a clear path to handling settlements.
"It's likely to take a number of further cases and a lot of additional litigation for courts to define what's reasonable as opposed to what's an unreasonable settlement," Pappert said.
Gordon said the anxiousness that followed Monday's Supreme Court ruling will most likely dissipate as people realize these settlements aren't going away for good.
"It will increase the cost and risk associated with doing so, but there's still room for coming up with appropriate settlements," Gordon said.
For Gordon, the broader concern is on a more procedural issue. He said the high court's ruling might make it easier to file an antitrust complaint that would survive the motion to dismiss and summary judgment stages.
Hittinger noted the strong dissent authored by Chief Justice John G. Roberts. Roberts took a similar position to the Eleventh Circuit in noting patents inherently provide an anti-competitive advantage and carve out an exception to antitrust laws. He also argued courts should foster parties' abilities to settle suits.
Roberts said there is no incentive to settle these cases given the majority's ruling because the parties would then be forced to litigate the same issues as part of a defense of an antitrust suit. Roberts also said "good luck to the district courts" that must interpret whether a reverse payment violated antitrust law.
"I would keep things as they were and not subject basic questions of patent law to an unbounded inquiry under antitrust law, with its treble damages and famously burdensome discovery," Roberts said in his dissent.
Hittinger said the majority's ruling could implicate more than just settlements in pharmaceutical patent litigation. He said parties need to be careful moving forward when crafting settlement agreements.
"It's an extremely important antitrust decision and the split between the majority and dissent is profound, more so than the cases we've seen in antitrust in the last 10 years," Hittinger said.