Wednesday, May 31, 2006, 4:28 PM

U.S. Solicitor General Files Brief in FTC/Schering-Plough Case

Pursuant to an invitation from the Supreme Court, the U.S. Solicitor General recently submitted a Brief for the United States as Amicus Curiae in the case of Federal Trade Commission v. Schering-Plough Corporation. The case involves one of the hot issues in antitrust and IP law: whether reverse payments in a pharmaceutical patent settlement agreement constitute a violation of the antitrust laws. As explained more fully below, the Eleventh Circuit ruled that such reverse payments did not, by themselves, violate antitrust laws, the FTC is seeking a petition of certiorari from the Supreme Court, and the Supreme Court asked the Solicitor General for its position. In its brief, the Solicitor General stated that the petition should be denied--a position contrary to that of the FTC.

Schering-Plough produces and markets K-Dur 20, a brand-name drug for treating high blood pressure and congestive heart disease. The drug contains an unpatented potassium chloride encapsulated in an extended release coating protected by Schering-Plough's patent number 4,863,743. This patent expires on September 5, 2006. Schering-Plough sued two of its competitors, Upsher-Smith Laboratories and ESI Lederle, Inc., who proposed to market generic drugs that Schering-Plough alleges would infringe patent number 4,863,743. The two competitors settled with Schering-Plough and the settlement agreement provided that the two competitors would not sell their generic versions until a future date (before the expiration of the patent) and in return Schering Plough would make substantial payments to the two competitors. The FTC challenged the settlement agreements as an unreasonable restraint of trade in violation of the Sherman Act.

The 11th Circuit Court of Appeals ruled in favor of Schering-Plough, finding that the reverse payment cannot be the sole basis of an antitrust violation. The FTC filed a petition for a writ of certiorari from the Supreme Court. The two questions presented by the FTC are as follows: (1) Whether the antitrust laws prohibit a brand name drug patent holder and a prospective generic competitor from settling patent infringement litigation by agreeing that the generic manufacturer will not enter the market before a future date within the term of the patent and that the patent holder will make a substantial payment to the generic manufacturer; and (2) Whether the court of appeals erred in concluding that "substantial evidence" did not support the Federal Trade Commission's factual finding that a payment from a patent holding to an allegedly infringing generic manufacturer was consideration for the generic manufacturer's delayed entry into the market rather than a separate royalty for a license concerning a different product.

The Supreme Court asked for the Solicitor General's views on granting the petition for certiorari. The Solicitor General responded that it was the Government's view that, although the issues are important, the petition for certiorari should be denied because the issue was not squarely addressed by the 11th Circuit and there is no circuit split. The Solicitor General noted:

"[Reverse payment] settlements may pose a risk of restricting competition
in ways that are not justified by a lawful patent, to the detriment of consumers. This case, however, does not present an appropriate opportunity for this Court to determine the proper standards for distinguishing legitimate patent settlements, which further the important goals of encouraging innovation and minimizing unnecessary litigation, from illegitimate settlements that impermissibly restrain trade in violation of the antitrust laws."

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