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Make War, Not Love

Pay-for-delay pharmaceutical patent settlements and antitrust scrutiny in the US and the EU
by

András Jókúti

on 5 November 2015

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Transcript of Make War, Not Love

Make War, Not Love?
Pay-for-delay Pharma Patent Settlements and Antitrust Scrutiny
The Hatch-Waxman exclusivity (US)
Predecessors of
Actavis
Actavis
Aftermath of
Actavis
Pioneers vs. Generics?
A beautiful friendship:
pay-for-delay?
infringement suit, counterclaim for revocation,
settlement
payment
(from the patentee to the generic)
cash payments
non-cash payments (purchase of generic stocks, no authorized generic commitment, licenses, etc.)
Effexor XR
formula (value transfer - avoided litigation costs - value of generic consideration or services =
unexplained payment
)
delay
post-patent expiry (but it may be a grey zone with follow-up patents)
pre-patent expiry (assumed defeat of the patent)
non-temporal restrictions
(potential) consideration from the generic apart from delay
{Hatch-Waxman exclusivity (US) - delay of others}
accompanying measures (e.g. acquiring technology, non-aggression agreements)
[reverse]
value transfer
element
"windfall" on the generic side (it could not get it otherwise)
sharing monopoly profits
Pioneer interests and tools
recouping investments with profit margin
patent protection and extensions
"product lifecycle management" (evergreening, product hopping, procedural moves)
launching own generic version
Generic interests
early market entry
avoiding duplication
price competition
Consumer interests
existence of drugs
availability of drugs
safety of drugs
cheaper drugs
in the context of regulatory marketing authorization
(partially) linking subsequent authorization to patent infringement and validity issues
limiting the circle of potential challengers (?)
reward for the first generic challenger of the patent
filing for an ANDA
"
Paragraph IV certification
" (patent is not infringed or invalid)
Infringement proceedings (45 days) and statutory stay (30 months)
exclusivity
if
no lawsuit
is filed in 45 days or if
generic prevails
or if the
parties settle
duration: 6 months (180 days)
not proprietary, only a deferred FDA approval for subsequent applicants
Alleged antitrust injury
removing generic incentive to compete
removing generic incentive to challenge the patent
reducing competitive pressure of potential generic entry
sharing monopoly rents (instead of driving prices down)
consumer harm
harm to the health care system
may be paired up with exclusionary conduct
prolonging monopoly (primary patent expired?)
leaving dubious patents unchallenged
relationship with patent law?
Infringed antitrust rules
Presumed illegality or rule of reason?
Friend or Foe?
Antitrust issues with pay-for-delay settlements
Sherman Act Section 1
FTC Act Section 5
TFEU Article 101
for comprehensive strategies, even Sherman Act Section 2 or TFEU Article 102
Antitrust authorities
argue for presumptive unlawfulness
FTC: "
quick look
" approach (not
per se
)
COM: "
by object
" illegality
no need to show consumer harm
but only after the primary patent has expired
US Supreme Court
:
rule of reason

burden of showing anticompetitive threats on FTC, and ample room for defendant to show cognizable efficiencies
no decision on the patent's validity, but presuming its "weakness" based on the size of the payment
Circuit split (resulting in the Supreme Court granting certiorari)
"Scope of the patent" doctrine
Cipro
(Fed. Cir. 2008)
settlement with no challenge clause, payment to the generic and generic entry at patent expiry OK
patent's exclusionary zone immunizes from antitrust
liability
reconciliation of antitrust
scrutiny
and the scope of the patent doctrine
"patent is an exception to the general rule against monopolies"
presumption of validity (except sham litigation and fraud before the PTO)
two qualifying factors: exclusivity has to be relinquished and the generic cannot agree not to market non-infringing versions
In re Tamoxifen Citrate Antitrust Litigation
(2d Cir. 2005)
Schering-Plough v. FTC
(11th Cir. 2005)
FTC v. Watson
(11th Cir. 2012):
Actavis
prelude, favoring settlements
"Quick look" (or
per se
) illegality
K-Dur
(3d Cir. 2012)
In re Cardizem CD
(6th Cir. 2003)
Further debates on the implications of
Actavis
Bold FTC antitrust challenges
Non-cash payments
In re Effexor XR Antitrust Litigation
(D.N.J. 2014)
"no authorized generic" commitment
In re Lidoderm Antitrust Litigation
(N.D.Cal. pending)
class action
free-of-charge branded products for the generic for resale in exchange for abandoning its challenge and staying out of the market until 2013
FTC v. Cephalon
(E.D.Pa. 2014) (settled)
FTC asserts that patent strength is not even a factor in RoR
settlement with Teva in 2005 (not to enter until 2012), patent acquired through fraud on PTO (not a valid defense in any case)
reasonableness shall be examined at the settlement date, not at the time of the subsequent finding of invalidity
Hatch-Waxman exclusivity not decisive (but probably a factor of RoR)
Tilting the balance of antitrust and IP?
Weakening patent protection?
Discouraging settlements? Discouraging challenges?
Facts
and procedural history
Solvay NDA for AndroGel in 2000, patent issued in 2003
Actavis files ANDA in 2003 for generic version, certifies under para IV
Solvay sues Actavis (FDA approves the generic after the 30 fruitless months' stay)
Parties settle in 2006: Actavis shall not bring the drug on the market until 2015 (65 months before patent expiry), promotion clause, annual transfer of $$ for 9 years
FTC files suit against settling parties, district court dismisses, 11th Cir. affirms, S.Ct. grants certiorari
Majority opinion
(S.Ct. 2013)
undisputed:
if patent is valid, drug prices could be high enough to recoup the reverse payment
agreement's anticompetitive effects fall within the exclusionary zone of the patent
however, these elements do not immunize the agreement from antitrust attack (they are
sometimes
unlawful)
reason:
potential
invalidity of the patent left untried because of the settlement
clear favoring of antitrust over IP, based on the "general procompetitive thrust of the Hatch-Waxman Act"
five sets of considerations
to deny that patent scope provides safe harbor:
(1) remaining uncertainty as to the patent's validity, plus Hatch-Waxman exclusivity delays subsequent challenges
(2) anticompetitive evils may be offset by justifications for payments under the rule of reason
(3) size of payment is a strong indication of market power (and thus ability to charge higher prices)
(4) unexplained large reverse payment shows that the patentee has serious doubts about validity ("workable surrogate for a patent's weakness", administrability argument)
(5) possibility to settle without antitrust concerns
r
everse payment settlements
are not presumptively unlawful, but
are to be examined under RoR
once the FTC established antitrust injury, the weakness of the patent is presumed, but the defendants are precluded from arguing under patent law: their cognizable defenses may only be of an antitrust nature
Dissent

Olivia Beaumont
The Commission's approach
"by object" illegality
(no proof of actual antitrust injury needed)
value transfer element emphasized
sensitivity: delay beyond the duration of
primary
patent
no challenger exclusivity (buying off generic competitors to enter before patent expiry is not worthwhile)
monitoring reports, classification of settlements (increase in number of settlements, with a lower proportion of B.II type "problematic" ones)
doctrinal
point of view: patent scope does not immunize from antitrust scrutiny, but
practically
, COM doesn't reach into the exclusionary zone of the primary patent
possible effect of CJEU's
Carte bancaire
judgment ("by object" illegality applicable only in narrow cases where it is not necessary to examine the effect in view of the high degree of harm caused by the collusion of certain undertakings, taking into account in particular the content, objective and economic and legal context of the agreement)
Lundbeck (citalopram)
molecule patents expired in 2002, process patents still in force
negotiated settlements with competitors preparing entry (lump sum and other financial inducements such as guaranteed profits and payments for stocks destroyed)
COM's four steps: missed opportunity of generic entry in exchange for payment that would not have been possible with patent enforcement
J&J (fentanyl)
co-promotion agreement between J&J subsidiary and Sandoz, delay of entry until 2006 (patent expiry: 2005)
atypical case: no patent in the way of genetic entry, no litigation
Servier (perindopril)
COM imposed fines of 427.7 million euros on Servier and five generic companies for a "comprehensive strategy" including settlement deals based on "secondary" patents and licenses of a limited geographical scope
abuse of dominant position also asserted (acquired and unused technology)
Note: these are
administrative decisions by COM
, subject to judicial review
Servier disputes the narrow relevant market and the value transfer as a basis for antitrust violation (mutual concessions, natural reaction)
Lundbeck argues the "scope of the patent" test should be observed and disputes the "by object" illegality treatment of its settlements
Landmark cases in Europe
USA
EU
Conclusions
US: patent scope does not protect from antitrust scrutiny
"whether the particular restraint lies beyond the limits of patent monopoly is a
conclusion
that flows from the analysis and not ... its starting point" (S.Ct. in
Actavis
)
EU: unsettled issues, "by object" illegality, ambiguity on the patent scope test
tendency to disregard the patent's exclusionary zone and launch antitrust scrutiny even if the settlement allows for generic entry before the expiry of the patent
concerns:
discouraging settlements
potentially more "false positives"
holding uncertainty against the patentee despite the presumption of validity (mistrust in patent offices?)
weakening of patent protection

complementary relationship of patent law and antitrust law (patent carves out an exception to the applicability of antitrust laws)
antitrust issues should only arise if the conduct reaches beyond the patent
incentive to settle is substantially impaired by the majority opinion (variety of bargaining chips artificially narrowed down, one dispute leads to another, i.e. antitrust challenge ensues from the patent challenge, with rearranged parties)
"good luck to the district court" that must, when faced with a patent settlement, decide patent law questions based on antitrust considerations
if a large payment is a proxy for the weakness of a patent, it is also amount to "putting blood in the water where sharks are always near"
Full transcript