Catherine G. O'Sullivan and David Seidman, attorneys for the U.S. Department of Justice, filed an amicus brief yesterday, May 18, 2011, supporting the plaintiffs in Re K-Dur Antitrust litigation in the U.S. District Court of Appeals for the Third Circuit. The following is an excerpt from the brief:
Market introduction of a generic drug has unique and dramatic economic consequences, because generics are significantly lower-priced bioequivalents of branded drugs and substitution is spurred by state “generic substitution laws.” These consequences create strong incentives for the branded drug manufacturer to pay a paragraph IV ANDA filer to settle the patent infringement litigation (that is, to make a “reverse” or “exclusion” payment). The branded firm faced with a generic firm’s paragraph IV certification runs the risk that pursuing infringement litigation to a conclusion will result in a determination that its patent is invalid...
Significantly, if the generic challenger wins, “the total profits of the patent holder and the generic manufacturer on the drug in the competitive market will be lower than the total profits of the patent holder alone under a patent-conferred monopoly.” Tamoxifen, 466 F.3d at 209. Thus it may “make economic sense for the patent holder to pay some portion of that difference to the generic manufacturer to maintain the patent-monopoly market for itself.” Id.
This case is an antitrust challenge to an agreement settling patent litigation between defendant-appellee Schering-Plough Corp.2 (“Schering”) and defendant-appellee Upsher-Smith Laboratories, Inc. (“Upsher”).3 At relevant times, Schering marketed a potassium chloride supplement under the brand name K-Dur. The particular formulation of the supplement, but not the active ingredient, was protected by Schering’s patent No. 4,863,743 (the “’743 patent”),4 which expired in 2006. A-18 (R&R). In 1995, Upsher filed an ANDA for a bioequivalent generic version of K-Dur it called Klor-Con, with a paragraph IV certification explaining why, in its view, Klor-Con did not infringe the ‘743 patent. Id. at A-21-22.
Reverse payments are scarcely essential to the voluntary settlement of patent disputes; to the contrary, they appear to be essentially unknown outside the Hatch-Waxman context.
Private agreements that include reverse payments are properly evaluated under the antitrust rule of reason, which takes into account efficiency-related justifications as well as anticompetitive potential. In the Hatch-Waxman context, the anticompetitive potential of reverse payments in exchange for the alleged infringer’s agreement not to compete and to eschew any challenge to the patent is sufficiently clear that such agreements should be treated as presumptively unlawful under section 1 of the Sherman Act. Defendants may rebut that presumption by providing a reasonable explanation of the payment, so that there is no reason to find that the settlement does not provide a degree of competition reasonably consistent with the parties’ contemporaneous evaluations of their prospects of litigation success.
The Court should vacate the judgment and remand for further proceedings.
Read the full brief here.