Antitrust Analysis of Pharmaceutical Manufacturer Conduct

This chapter surveys the principal issues that have arisen in the context
of antitrust challenges to the conduct of pharmaceutical manufacturers.
Parts A and B discuss patent settlement agreements and other agreements
between branded and generic companies. Part C discusses two forms of
litigation abuse: enforcement of patents obtained by fraud and sham
litigation. Part D addresses alleged abuses of the pharmaceutical
regulatory scheme, and Part E discusses the introduction of new drug
formulations as part of a product switching strategy.
A. Pharmaceutical Patent Settlements
Pharmaceutical patent settlements have been a major antitrust
battleground before the FTC and in the courts. In 2000, the FTC began
lodging complaints against several brand name and generic drug
companies alleging that the settlements of Hatch-Waxman infringement
litigation to which they were party constituted unfair methods of
competition in violation of Section 5 of the Federal Trade Commission
Act (FTCA).1 Private class actions soon followed. The Supreme Court’s
2013 decision in FTC v. Actavis2 resolved a number of issues that had
divided the lower courts but created a number of new questions that the
courts are just beginning to address.
1. See Complaint Counsel’s Statement of the Case, Schering-Plough, No.
9297 (FTC Sept. 18, 2001), available at
d9297/010918ccsotc.pdf; Complaint, Hoechst Marion Roussel, No. 9293
(FTC Mar. 16, 2000), available at
03/hoechstandrx complaint.htm; Complaint, In re Abbott Labs., No. C-
3945 (FTC Mar. 16, 2000), available at
03/abbottcmp.htm; see also FED. TRADE COMMN, GENERIC DRUG ENTRY
PRIOR TO PATENT EXPIRA TION: AN FTC STUDY 4 (July 2002) [hereinafter
FTC, GENER IC DR UG ENTRY], available at
expiration-ftc-study/ genericdrugstudy_0.pdf.
2. 570 U.S. 136 (2013).
272 Pharmaceutical Industry Antitrust Handbook
1. Distinguishing Features of Hatch-Waxman Settlements
Reverse payments may be defined as payments (or other transfers of
value) made by the patent holder to the accused infringer—usually as part
of the settlement of patent infringement litigationin exchange for an
agreement by the accused infringer not to enter until a future date. The
FTC’s objection to such payments, at least where they exceed nominal
litigation expenses, is clear:
If there has been a pa yment from the patent holder to the generic
challenger, there must have been some offsetting consideration. Absent
proof of other offsetting consideration, it is logical to conclude that the
quid pro quo for the payment was an agreement by the generic to defer
entry beyond the date that represents an otherwise reasonable litigation
The generic market price is significantly lower than the brand price.
The branded manufacturer might find it economically rational, therefore,
to pay the generic more money to keep its product off the market than the
generic would gain by winning the lawsuit and entering. By paying to
keep the generic out, the branded manufacturer can split the higher profits
it would earn by avoiding generic competition. In these circumstances,
consumers lose the benefit of lower prices from faster generic entry.4 The
presence of a reverse payment demonstrates, many argue, that the
settlement improperly extends the exclusionary power of patents.5
3. Schering-Plough, 136 F.T.C. 956, 988 (2003).
4. Protecting Consumer Access to Generic Drugs: The Benefits of a
Legislative Solution to Anticompetitive Patent Se ttlements in the
Pharmaceutical Industry: Hearing Before the H. Subcomm. on Commerce,
Trade and Consumer Protection, 110th Cong. 11-12 (2007) (statement of
the FTC), available at
P859910Protecting_Consume_ Access_testimony.pdf.
5. See Alden F. Abbott & Suzanne T. Michel, The Right Balance of
Competition Policy and Intellectual Property Law: A Perspective on
Settlements of Pharmaceutical Patent Litigation, 46 IDEA 1, 15 (2005)
(arguing that “the payments from the patentee to the accuse d infringer in
the recent pharmaceutical patent litigation settlements purchased a degree
of exclusion that could not be obtained solely through the exclusionary
power of the patent.”); see also Maureen A. O’Rourke & Joseph F.
Brodley, An Incentives Approach to Patent Settlements: A Commentary on
Hovenkamp, Janis and Lemley, 87 MINN. L. REV. 1767, 1786 (2003).
Other commentators have viewed reverse payments “as a clear signal that
the settlement is likely to be anticompetitive” because “the patent holder
Antitrust Analysis of Manufacturer Conduct 273
The view that reverse payments are presumptively anticompetitive has
been challenged by other commentators. These commentators contest the
assumption that, absent a reverse payment, the parties would likely
inevitably have settled with an earlier generic entry date. They point
instead to situations in which reverse payments would promote earlier
generic competition than would have occurred absent the payments, citing
as examples situations in which the parties have asymmetric market
information, asymmetric expectations of the success in the litigation,
different time horizons, and different risk preferences.6
2. Pre-Actavis Case Law
Prior to the Supreme Court’s 2013 decision in Actavis, the federal
appellate courts were divided about the appropriate legal standard to apply
in analyzing reverse payments. Several federal courts decisionsin
particular, the Federal Circuit’s decision in the Cipro Hydrochloride
Antitrust Litigation,7 the Second Circuit’s decision in the Tamoxifen
Citrate Antitrust Litigation,8 and the Eleventh Circuit’s decisions in
Schering-Plough v. FTC9 and FTC v. Watson Pharmaceuticals10largely
rejected antitrust claims based solely on reverse payments as long as the
would not pay more than avoided litigation costs unless it believed that it
was buying later entry than it expects to face through the litigation
alternative.” Carl Shapiro, Antitrust Limits to Patent Settlements, 34 RAND
J. ECON. 391, 407-08 (2003). Professors Hovenkamp, Janis, and Lemley
have argued that reverse payments in the Hatch-Waxman context should
be presumptively unlawful. Herbert Hovenkamp et al., Anticompetitive
Settlement of Intellectual Property Disputes, 87 MIN N. L. REV. 1719, 1759
(2003). In their view, patent holders can rebut the presumption by showing
that (1) they have a significant likelihood of prevailing in the patent
infringement litigation; and (2) the size of the p ayment is no more than the
attendant litigation costs. Id.
6. Kent S. Bernard & Willard K. Tom, Antitrust Treatment of Pharmaceutical
Patent Settlements: The Need for Context and Fid elity to First Principles,
15 FED. CIR. B.J. 617, 630 (2006); Marc G. Schildkraut, Patent-Splitting
Settlements and the Reverse Payment Fallacy, 71 ANTITRUST L.J. 1033,
1057-67 (2004); Robert D. Willig & John P. Bigelow, Antitrust Policy
Toward Agreements That Settle Patent Litigation, 49 ANTITRUST BULL.
655 (Fall 2004).
7. In re Ciprofloxacin Hydrochloride Antitrust Litig. (Cipro), 544 F.3d 1323
(Fed. Cir. 2008).
8. In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006).
9. Schering-Plough v. FTC, 402 F.3d 1056 (11th Cir. 2005).
10. FTC v. Watson Pharms., 677 F.3d 1298 (11th Cir. 2012).

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