Friday, October 16, 2009, 10:58 AM

Senate Bill Limiting Reverse Payment Settlements

Reverse payment settlements occur when a brand-name drug manufacturer makes a "reverse" payment to settle a patent dispute with a generic drug manufacturer. In exchange for this payment, the generic drug manufacture agrees to delay its entry into the drug market. These payments are called "reverse" payments because it is the patent-holder/plaintiff that is making a payment to the alleged patent-infringer/defendant.

The FTC has challenged these payments as anticompetitive, with mixed results. See Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005) (reversing FTC's ruling that reverse payment settlement agreement was unlawful under Sherman Act). During the Bush administration, the DOJ disagreed with the FTC's position -- a rare split between the two federal agencies charged with enforcing the antitrust laws. The DOJ under the Obama administration, however, has realligend itself with the FTC's position. See DOJ's brief in In re Ciproflaxin Hydrochloride Antitrust Litigation (2nd Circuit). This blog has followed this issue here and here and here.

On October 15, 2009, the Senate Judiciary Committee passed the Preserve Access to Affordable Generics Act, S. 369. The bill originally outlawed all reverse-payment settlements. But the bill was later amended to create a rebutable presumption that reverse-payment settlements were anticompetitive. To overcome this presumption, the drug manufacturer would have to prove by "clear and convincing evidence" that the deal promotes competition. Opponents of the bill argue that the standard for rebutting the presumption should be reduced to the "preponderance of the evidence."

The bill raises some interesting questions. How would these shifting burdens differ from the structured rule of reason analysis that the DOJ has already advocated for analyzing reverse-payment settlements? How would a drug company prove that such a deal was procompetitive? Would it be enough to prove that the reverse-payment was commensurate with the avoided litigation cost? How much in excess of the avoided litigation costs is too much? What role would the underlying merits of the patent dispute play in such an analysis? Would the court have to hold a "little trial" on the patent dispute before deciding the antitrust issue? How does the regulatory framework of the Hatch Waxman Act affect the competitive analysis?

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