A Second Opinion on Pharmaceutical Reverse Payment Settlements: Why Actavis Missed the Mark
| Publication year | 2013 |
A Second Opinion on Pharmaceutical Reverse Payment Settlements: Why Actavis Missed the Mark
Alex Galvan
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On December 7, 2012, the Federal Trade Commission (FTC) sported a grin from ear-to-ear.2 For years, the FTC unabashedly shopped and hopped federal circuits in hopes of creating a split regarding the application of antitrust law to reverse payment settlements between brand-name drug manufacturers and generic drug manufacturers.3 Over the years, the FTC has been the recipient of numerous judicial gut checks as the independent agency sought to formally denigrate the use of reverse payment settlements.4 Undaunted by previous losses, the FTC directly challenged many reverse payment settlements, while filing amicus briefs in suits brought by private entities challenging the same types of
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settlements.5 The FTC, alongside various members of the pharmaceutical industry, fought ardently to curtail this "new way of doing business."6 According to FTC Commissioner Jon Leibowitz, if left unfettered, these reverse payment settlements will delay the entry of generic pharmaceuticals into the market and drive up the cost of prescription drugs, unhinging the results of legislation like the Hatch-Waxman Act, which successfully decreased the cost of many prescription drugs.7
On July 16, 2012, the Third Circuit granted the FTC's wish.8 In a startling decision, the court held the existence of reverse payment settlements was prima facie evidence of an unreasonable restraint of trade.9 The Third Circuit created a split between itself and at least three other federal circuits.10 As a result of the Third Circuit's
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opinion, parties to the reverse payment settlement filed a petition for certiorari to the Supreme Court.11 The Court granted certiorari in three reverse payment settlement cases, but only published an opinion in FTC v. Actavis.12 While it seems that the FTC won the day at the Supreme Court, the agency did not come out unscathed.13 Instead of adopting the stringent and necessary level of scrutiny proposed by the FTC and the Third Circuit, the Court reversed and remanded the cases to be reanalyzed under a watered-down antitrust framework.14
This Note examines both the split among federal circuit courts regarding which test courts should use to determine if a reverse payment settlement violates antitrust law and also examines the Supreme Court's recent opinion in FTC v. Actavis. Part I dissects applicable law and legislative history surrounding the current split.15 Part II discusses the seminal cases represented in the split and analyzes the various tests adopted by each of the courts.16 Part III presents the Supreme Court's decision in FTC v. Actavis.17 Finally, Part IV explains why the Supreme Court's Actavis decision missed the mark by failing to enable lower courts to review reverse payment
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settlements with the level of antitrust scrutiny necessary to combat these harmful settlement agreements.18
A. The Symptoms: An Overview of Pharmaceutical Reverse Payment Settlements
When the manufacturer of a generic drug wishes to debut that drug on the market, the manufacturer must notify the brand-name patent holder that a generic medication will soon be released.19 This notification is required if a generic manufacturer intends to expedite FDA approval under the Hatch-Waxman Act.20 After receiving this notice, many brand-name patent holders file patent infringement claims against their would-be generic competition.21 Many of these claims are resolved through settlements.22 At this juncture, according to the FTC, some of these settlements begin to skirt, if not completely contravene, the Sherman Act and established antitrust principles.23
Often, particularly in the most nefarious of these settlement agreements, the brand-name patent holder will pay the generic manufacturer—the alleged infringer—to withdraw its patent challenge and to keep their generic product out of the market for an extended period of time.24 These agreements are often referred to as reverse payment settlements, "exclusion agreements," or, more colloquially, pay-for-delay settlements.25 As the FTC became aware of this new phenomenon, the agency grew wary of the ramifications these reverse payment settlements could have on the availability of
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affordable generic pharmaceuticals.26 In response to this problem, Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which included amendments to the existing Hatch-Waxman Act.27 The amendments required that parties wishing to enter into patent infringement settlements, as described above, notify and file the agreements with the FTC and the Department of Justice (DOJ) for review.28
After the passage of the amendments to Hatch-Waxman, the FTC was ready to dole out tough medicine to those pharmaceutical companies seeking to avoid competition.29 The pharmaceutical world would soon learn, however, that the FTC was playing with nothing more than placebos and, when it came to restricting reverse payment settlements, the agency was powerless.30 That is, until, December 7, 2012.31
B. Antitrust Antibiotics: The Sherman Act
In passing the Sherman Act in 1890, Congress empowered itself to address two serious issues facing the country: monopolization and restraint of trade or commerce.32 The purpose of the Sherman Act is
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to "preserv[e] free and unfettered competition as the rule of trade."33 Under the Act, there are two basic types of violations: per se violations and violations of the rule of reason.34 Per se violations are, on their face, so injurious to competition that there is no need for significant inquiry into the facts of a particular contract or deal.35 To grapple with agreements that cannot be so easily deemed per se violations, the rule of reason approach takes into account the restrictive nature of agreements and further analyzes the agreement's effect on competition.36 The Supreme Court noted that it is essential to determine whether the agreement merely regulates and benefits the industry, or whether the agreement is injurious to competition within the industry.37 As a result, rule of reason violations are characterized as such only after an assessment of the totality of the circumstances surrounding the agreement.38 Factors of the inquiry include: (1) the
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facts relevant to the particular industry or business at issue; (2) the condition of the industry or business before and after the alleged restraint; (3) the specific characteristics of the restraint in question and potential ramifications, either "actual or probable."39
C. Generics Work Just as Well: The Hatch-Waxman Act
As prices for pharmaceuticals skyrocketed, Congress stepped in through the Hatch-Waxman Act.40 Through Hatch-Waxman, Congress sought to remedy this problem by removing many of the hoops a generic manufacturer would have to jump through to break into the pharmaceutical market with its significantly cheaper product.41 In so doing, Congress sought to increase access to generic medications and encourage brand-name pharmaceutical companies to lower their prices through economics.42 Congress achieved this by
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lessening the filing requirements mandated by the Food and Drug Administration (FDA) for introducing generic drugs.43 A manufacturer interested in producing a generic drug need only file an Abbreviated New Drug Application (ANDA).44 The ANDA does not require the extensive—and often expensive—scientific research and data usually necessary for the standard application so long as the generic applicant can prove that their product is the "bioequivalent"45 of the already patented drug.46 The applicant is then able to use the research and safety testing performed by the brand-name patent holder to receive FDA approval of their generic drug.47
While Hatch-Waxman relaxed the process for seeking FDA approval, the ANDA requires that generic applicants certify that their proposed drug will not create friction among the patents already contained in the FDA's Orange Book.48 A generic applicant may file one of four possible certifications.49 Each certification ensures that there is no direct patent infringement.50 It is the fourth method of
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certification that gives rise to reverse payment settlements.51 When a generic manufacturer files a Paragraph IV Certification, the applicant is assuring that an existing patent should not hinder approval by the FDA "because the listed patent is either invalid or not infringed by the ANDA."52 As part of the Paragraph IV Certification, the generic applicant must notify the brand-name manufacturer of its intent to enter the market.53 The brand-name manufacturer then has forty-five days to file suit for patent infringement.54 If suit is filed, the FDA is barred from granting approval for up to thirty months.55 If a court rules on the patent or the patent in question expires, the FDA may approve the generic drug.56
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D. Renewing the Prescription: The Affordable Care Act (ACA)
"In 2010, Congress enacted the Patient Protection and Affordable Care Act in order to increase the number of Americans with health insurance and decrease the cost of health care."57 This sentence opened the opinion in one of the most surprising Supreme Court decisions of the decade.58 The Court's approval of the ACA in National Federation of Independent Business v. Sebelius was the end of a long, hard-fought battle for access to quality, affordable healthcare.59 As one of the central tenets of the ACA, insurance companies can choose to be placed into "Exchanges,"60 and those seeking to acquire insurance will be able to easily and efficiently compare the costs and benefits of a particular policy.61 As a...
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