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A federal appeals court Tuesday overruled a Federal Trade Commission decision that aimed to prevent drug patent holders from paying generic makers to keep cheaper drug versions off the market. In a big victory for pharmaceutical giant Schering-Plough Corp., Judge Peter T. Fay, writing for the 11th U.S. Circuit Court of Appeals in Atlanta, ruled that the December 2003 FTC decision would weaken the ability of drug companies to defend their patents. The decision also suggests that the FTC’s position would give patent holders less certainty in settling cases out of court. “Patent owners should not be in a worse position, by virtue of the patent rights, to negotiate and settle surrounding lawsuits,” Fay wrote. “It is uncontested that parties settle cases based on their perceived risk of prevailing in and losing the litigation.” Schering-Plough holds a patent on a drug called K-Dur 20, a formulation of potassium chloride, for which Upsher-Smith Laboratories Inc. hoped to create a generic alternative, filing its intent with the Food and Drug Administration in 1995. Under the Hatch-Waxman Act, which governs generic access to patented drugs, the first company seeking approval for a generic could get a short-term monopoly on the generic formula by clearing certain hurdles. Schering sued Upsher, and in 1997 settlement discussions began. Schering agreed, in part, to pay more than $60 million in royalties for five Upsher products. The FTC argued that the payment was effectively a payoff for delaying introduction of the generic — essentially a restraint of trade. It cited evidence from similar cases showing that the entry of even one generic as an alternative to a brand-name drug could substantially lower prices for consumers. Fay’s opinion called the FTC’s approach “inflexible” and suggested that the agency, in ruling against what the industry called “reverse payments,” used less logic and careful analysis than the law requires. The FTC would not comment on the reversal, but Richard Feinstein, a partner with Boies, Schiller & Flexner, who helped to bring the case while at the FTC, said the appellate court’s opinion disappointed him. “Having been personally involved, I felt the commission had correctly decided this case in the interest of consumers,” he said. “I hope the FTC will consider pursuing this matter to the Supreme Court.” Copyright �2005 TDD, LLC. All rights reserved.

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