Antitrust Issues in ANDA Litigation

• Author: Bradford P. Lyerla
• Pages: 153-222

153

chapter 5

Antitrust Issues

inANDALitigation

I. Introduction

A specialized area of particular focus at the intersection of patent and

antitrust law is Abbreviated New Drug Application (ANDA) litigation

under the Hatch-Waxman Act. ANDA is an application for approval of a

U.S. generic drug typically for an existing brand-name drug. The ANDA

is submitted to the U.S. Food and Drug Administration’s (FDA) Center for

Drug Evaluation and Research, Office of Generic Drugs, which provides

for the review and approval of a generic drug. Once approved, an appli-

cant may manufacture and market the generic drug in the United States

to provide an alternative for the corresponding brand-name drug. All

approved drugs, including generic drugs, are listed in the FDA’s Approved

Drug Products with Therapeutic Equivalence Evaluations, which is also

referred to as the Orange Book.

In 2013, the Supreme Court resolved an unsettled question regarding

the legality of “reverse payment” settlement agreements, which involve a

payment from a patent holder to an accused infringer in exchange for an

agreement by the accused infringer not to compete with the patent holder.1

While not finding such agreements presumptively illegal, the Court held

that they were susceptible to antitrust scrutiny and should be evaluated

under a “rule of reason” analysis. In so holding, the Court overruled the

majority of courts of appeal that had deemed the practice free of antitrust

implications, for reasons directly related to the nature of the activities

giving rise to such litigation.

1. FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013).

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CHAPTER 5

154

II. ANDA Litigation Basics

§5.1 “Reverse Payment” Settlement Agreements

The Hatch-Waxman Act2 makes it an act of infringement to file an ANDA

with the FDA in the face of a patent holder/innovator having regulatory

approval to market a drug and a patent or patents on said drug, a formu-

lation of the drug or methods of making or using the drug. Generally, a

generic-drug maker filing an ANDA triggers this infringement provision

by asserting that the patent or patents listed with the FDA in the Orange

Book for an approved drug is not infringed, invalid, or unenforceable. The

patent holder then has forty-five days to file suit, and if filed, invokes a

thirty-month stay in any approval of the generic-drug maker’s ANDA by

the FDA.

The nature of this litigation is unlike any other patent infringement

case. The accused infringer’s product is not on the market in the United

States and accordingly is not at risk for a damages assessment, and may

not have investment at risk of an injunction. As noted by the Eleventh

Circuit in Schering-Plough v. FTC:3

It is uncontested that parties settle cases based on their perceived

risk of prevailing in and losing the litigation. Pre–Hatch-Waxman,

[the generic challengers] normally would have had to enter the

market with their products, incurring the costs of clinical trials,

manufacturing and marketing. This market entry would have

driven down [the patent holder]’s profits, as it took sales away. As

a result, [the patent holder] would have sued [the generics chal-

lengers], seeking damages for lost profits and willful infringement.

Assuming the patent is reasonably strong, and the parties then

settled under this scenario, the money most probably would flow

from the infringers to [the patent holder] because the generics

would have put their companies at risk by making infringing sales.

In ANDA litigation, it is the patent holder who has all the risk, specif-

ically that the patent holder’s patent will be found invalid or unenforce-

able. As a consequence, there has developed over the past decade a greater

tendency for the patent holder/drug innovator to settle ANDA litigation on

terms where the generics challenger enters the marketplace later than it

would have if it had prevailed in the litigation but generally earlier than

if the challenger had lost, with the exchange of cash or other payment of

2. Drug Price Competition and Patent Term Restoration Act, 35 U.S.C. §271(e)(2)(A).

3. Schering-Plough Corp. v. Fed. Trade Comm’n, 402 F.3d 1056, 1073–74 (11th Cir. 2005).

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Antitrust Issues inANDALitigation 155

value from the patent holder to the accused infringer. This situation has

raised antitrust concerns not only from consumers but also especially by

the FTC, who has not only participated as a plaintiff or amicus in antitrust

suits but has also originated antitrust suits.

§5.1.1 The FTC’s Objections to “Reverse Payment”

SettlementAgreements

The FTC’s original position was that “reverse payment” settlement agree-

ments are per se violations of section 1 of the Sherman Act as naked agree-

ments in restraint of trade. It should be noted that proponents of “reverse

payment” agreements commonly refer to these agreements as such while

detractors like the FTC commonly refer to these agreements as “pay for

delay” agreements. Accordingly, the FTC called for an outright ban on

these agreements.4 Having universally lost in the courts on this theory, as

set forth in more detail below, the FTC has moderated its position, more

recently advocating that these agreements are presumptively illegal and

should be reviewed for antitrust liability under the “rule of reason.”

The FTC’s reasoning and the basis for its crusade against such prac-

tices are as follows. First, generic drug competition decreases the costs

of drugs to consumers and, more importantly, to the federal government,

the largest drug purchaser in the United States if not the world. Second,

generic drug companies are motivated under the Hatch-Waxman Act to

challenge patents, because the “first to file” an ANDA with a certification

that the generic drug does not infringe or, more commonly, that the innova-

tor’s patents are invalid or unenforceable, will garner a 180-day exclusivity

period as the only generic drug on the market. Third, reverse payment

settlements upset the statutory arrangement, permitting “bad” patents to

remain in effect and delaying generic drug entry. On the contrary, courts

have found generally that reverse payment arrangements reduce the delay

in generic drug entry (see later in chapter). Fourth, generic drug compa-

nies prevailed in ANDA litigation against brand-name drug companies

75percent of the time between 1992 and 2002.5 Finally, the FTC contends

that branded drug companies enter into reverse payment arrangements

because they know that their patents are invalid or unenforceable and the

agreement permits them to undeservedly collect “monopoly” profits. This

contention has been almost universally rejected by the courts of appeal

4. See FTC,

Pay-For-Delay: How Drug ComPany Pay-oFFs CosT Consumers Billions

2

(2010).

5. See FTC,

generiC Drug enTry Prior To PaTenT exPiraTion: an FTC sTuDy

, at viii (2002)

(providing incentives for brand-name companies to pursue these types of agreements).

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