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Hatch-Waxman Litigation and Reverse-Payment Settlements Anastasia P. Winslow Senior Counsel, Patents - Bristol-Myers Squibb Company.

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Presentation on theme: "Hatch-Waxman Litigation and Reverse-Payment Settlements Anastasia P. Winslow Senior Counsel, Patents - Bristol-Myers Squibb Company."— Presentation transcript:

1 Hatch-Waxman Litigation and Reverse-Payment Settlements Anastasia P. Winslow Senior Counsel, Patents - Bristol-Myers Squibb Company

2 2 Outline of Topics Relevant regulatory background Relevant regulatory background Scenario of a reverse-payment settlement Scenario of a reverse-payment settlement Antitrust principles Antitrust principles Key court decisions Key court decisions FTC, DOJ’s positions in Schering-Plough v. FTC and In re Ciprofloxacin Hydrochloride Antitrust Litigation FTC, DOJ’s positions in Schering-Plough v. FTC and In re Ciprofloxacin Hydrochloride Antitrust Litigation Currently pending legislation Currently pending legislation Summary SummaryQ&A

3 3 Relevant Regulatory Background ANDA filer, seeking approval for a generic drug under the Hatch-Waxman Act, must certify against Orange Book listed patents that: ANDA filer, seeking approval for a generic drug under the Hatch-Waxman Act, must certify against Orange Book listed patents that: (1) no listed patent (paragraph I); (1) no listed patent (paragraph I); (2) patent has expired (paragraph II); (2) patent has expired (paragraph II); (3) patent will expire on date certain and filer will not market until after expiry (paragraph III); or (3) patent will expire on date certain and filer will not market until after expiry (paragraph III); or (4) listed patent(s) invalid and/or would not be infringed by sale of generic product (paragraph IV). (4) listed patent(s) invalid and/or would not be infringed by sale of generic product (paragraph IV). Where P(IV), ANDA filer must notify patent owner and patent owner has 45 days to sue for infringement Where P(IV), ANDA filer must notify patent owner and patent owner has 45 days to sue for infringement If patent owner does not sue, FDA can approve ANDA If patent owner does not sue, FDA can approve ANDA If patent owner sues, FDA’s final approval of ANDA is stayed for 30 months If patent owner sues, FDA’s final approval of ANDA is stayed for 30 months After 30 months, if no ruling FDA can approve and ANDA can market at risk After 30 months, if no ruling FDA can approve and ANDA can market at risk If HW litigation initiated but dismissed before expiry of 30 month stay, stay is lifted and ANDA can be approved If HW litigation initiated but dismissed before expiry of 30 month stay, stay is lifted and ANDA can be approved

4 4 180-day exclusivity period Provided as an incentive to encourage ANDA filers to challenge weak patents Provided as an incentive to encourage ANDA filers to challenge weak patents First ANDA filer raising a P(IV) gets 180 days exclusivity to market its generic version, over later ANDA filers, i.e., FDA may not approver a later ANDA until this period has run First ANDA filer raising a P(IV) gets 180 days exclusivity to market its generic version, over later ANDA filers, i.e., FDA may not approver a later ANDA until this period has run Referred to as a “bounty” to reimburse the first ANDA filer for litigation costs incurred in challenging the patent Referred to as a “bounty” to reimburse the first ANDA filer for litigation costs incurred in challenging the patent “Trigger date” for 180 day exclusivity period is earlier of the date “Trigger date” for 180 day exclusivity period is earlier of the date (1) 1 st ANDA filer markets, or (1) 1 st ANDA filer markets, or (2) court concludes that the patent is invalid or not infringed. (2) court concludes that the patent is invalid or not infringed.

5 5 Hypothetical Scenario illustrating “Reverse Payment” Brand Company markets drug X, earning $500 million/yr Brand Company markets drug X, earning $500 million/yr First ANDA filer raises a P(IV) challenge – Brand sues under HW First ANDA filer raises a P(IV) challenge – Brand sues under HW Anticipated if first ANDA filer (“Generic”) went on market, sales to Brand would drop to $200 million/yr, and Generic would earn $80 million/yr Anticipated if first ANDA filer (“Generic”) went on market, sales to Brand would drop to $200 million/yr, and Generic would earn $80 million/yr Brand and Generic settle HW litigation - Generic agrees to delay marketing of generic product until relevant patents expire; Brand pays Generic $25 million each quarter Generic stays off the market Brand and Generic settle HW litigation - Generic agrees to delay marketing of generic product until relevant patents expire; Brand pays Generic $25 million each quarter Generic stays off the market Price is kept at brand rate; Brand can profitably afford to pay Generic more to delay entry ($100 million) than Generic would have made selling the product Price is kept at brand rate; Brand can profitably afford to pay Generic more to delay entry ($100 million) than Generic would have made selling the product

6 6 Impact on 180-day exclusivity Once first ANDA filer settles, no other ANDA filer will benefit from 180-day exclusivity (this incentive to challenge is removed) Once first ANDA filer settles, no other ANDA filer will benefit from 180-day exclusivity (this incentive to challenge is removed) A question arises whether settlement with the first ANDA filer may post-pone trigger of the 180 exclusivity period by delaying entry and/or invalidity or non-infringement decision A question arises whether settlement with the first ANDA filer may post-pone trigger of the 180 exclusivity period by delaying entry and/or invalidity or non-infringement decision 2003 Amendments (Medicare Prescription Drug, Improvement and Modernization Act), includes forfeiture provisions (“use it or lose it” provisions), which may impact this issue Amendments (Medicare Prescription Drug, Improvement and Modernization Act), includes forfeiture provisions (“use it or lose it” provisions), which may impact this issue. Now, 180 day exclusivity will be lost if, inter alia, first ANDA filer does not market within 75 days of FDA approval or if withdraws ANDA (21 U.S.C. § 355(j)(5)(D)(i)). If HW litigation is dismissed, ANDA can be finally approved and if so, ANDA has 75 days to market or loses 180 exclusivity Now, 180 day exclusivity will be lost if, inter alia, first ANDA filer does not market within 75 days of FDA approval or if withdraws ANDA (21 U.S.C. § 355(j)(5)(D)(i)). If HW litigation is dismissed, ANDA can be finally approved and if so, ANDA has 75 days to market or loses 180 exclusivity 2003 amendments also require that settlements be filed with the FTC and DOJ within 10 days of execution 2003 amendments also require that settlements be filed with the FTC and DOJ within 10 days of execution

7 7 Perspectives Perspectives Antitrust liability, restraining competition? ? ? Exercise of patent right, thus promoting innovation Settlement of litigation, fostering judicial economy

8 8 Applicable Antitrust rules Section 1 of Sherman Act, 15 U.S.C. § 1 Section 1 of Sherman Act, 15 U.S.C. § 1 “ Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal” Interpreted to ban only unreasonable restraints of trade Interpreted to ban only unreasonable restraints of trade Courts typically apply one of two approaches to determine if a restraint of trade is unreasonable Courts typically apply one of two approaches to determine if a restraint of trade is unreasonable Illegal per se Illegal per se Rule of reason Rule of reason

9 9 Antitrust Analysis Illegal Per se rule Certain agreements are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry into the precise harm they have caused or their business excuse Certain agreements are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry into the precise harm they have caused or their business excuse No opportunity to argue for pro-competitive effects based on particular factual circumstances or intent of the parties No opportunity to argue for pro-competitive effects based on particular factual circumstances or intent of the parties Classified as illegal per se after considerable experience with business relationship at issue Classified as illegal per se after considerable experience with business relationship at issue Rule of reason Fact-finder weighs all the circumstances of a case in deciding whether a restrictive practice should be prohibited as an unreasonable restraint on trade Fact-finder weighs all the circumstances of a case in deciding whether a restrictive practice should be prohibited as an unreasonable restraint on trade A balancing test may be applied (2d Cir.) A balancing test may be applied (2d Cir.) (1) Plaintiff shows that restraint had actual adverse effect on competition in the relevant market; (1) Plaintiff shows that restraint had actual adverse effect on competition in the relevant market; (2) If (1) met, defendant must show pro-competitive effects; (2) If (1) met, defendant must show pro-competitive effects; (3) If (2) met, then plaintiff must show the pro-competitive effects could have been achieved with less restriction on competition. (3) If (2) met, then plaintiff must show the pro-competitive effects could have been achieved with less restriction on competition.

10 10 Clash Between Antitrust Principles and Patent Rights A patent allows its owner to “lawfully restrain” trade by virtue of the patent monopoly – recognized as an exception to the Sherman Act ( §§ 1 and 2) A patent allows its owner to “lawfully restrain” trade by virtue of the patent monopoly – recognized as an exception to the Sherman Act ( §§ 1 and 2) Practices typically considered per se illegal may be acceptable as within the scope of the patent right Practices typically considered per se illegal may be acceptable as within the scope of the patent right Price-fixing agreements are per se illegal Price-fixing agreements are per se illegal Yet, patentee may legally fix price at which licensee is allowed to sell the patented product (US v. General Electric Co., 272 US 476 (1926)) Yet, patentee may legally fix price at which licensee is allowed to sell the patented product (US v. General Electric Co., 272 US 476 (1926)) Allocation of markets among horizontal competitors is per se illegal (United States v. Topco Associates, 405 U.S. 596 (1972)) Allocation of markets among horizontal competitors is per se illegal (United States v. Topco Associates, 405 U.S. 596 (1972)) Yet, patentee may allocate markets among its horizontal competitors via geographic patent license restrictions Yet, patentee may allocate markets among its horizontal competitors via geographic patent license restrictions Scope of patent exception from Sherman Act must be tied to limits of the patent grant Scope of patent exception from Sherman Act must be tied to limits of the patent grant E.g., two patentees may not pool their patents via cross-licenses and fix prices – outside scope of patent right, not exempted and per se illegal (US v. Line Materials Co., 333 US 287 (1948)) E.g., two patentees may not pool their patents via cross-licenses and fix prices – outside scope of patent right, not exempted and per se illegal (US v. Line Materials Co., 333 US 287 (1948))

11 11 How is this Clash Analyzed in the Reverse-Payment Scenario? Per se Illegal cases Per se Illegal cases In re Cardizem CD Antitrust Litig., 6th Cir. (‘02) In re Cardizem CD Antitrust Litig., 6th Cir. (‘02) In re Terazosin Hydrochloride Antitrust Litig., (S.D. Fla.), on remand from 11th Cir. (’05) In re Terazosin Hydrochloride Antitrust Litig., (S.D. Fla.), on remand from 11th Cir. (’05) Modified 3-Part Analysis; May Consider Strength of Litigation position Modified 3-Part Analysis; May Consider Strength of Litigation position Valley Drug Co. v. Geneva Pharm., 11th Cir. (’03) Valley Drug Co. v. Geneva Pharm., 11th Cir. (’03) Schering Plough Corp. v. FTC, 11th Cir. (’05) Schering Plough Corp. v. FTC, 11th Cir. (’05) Settlement of Litigation, Fosters Judicial Economy Settlement of Litigation, Fosters Judicial Economy May be unlawful; consider whether agreement exceeds scope of patent monopoly May be unlawful; consider whether agreement exceeds scope of patent monopoly In re Tamoxifen Citrate Antitrust Litig., 2d Cir. (’05) In re Tamoxifen Citrate Antitrust Litig., 2d Cir. (’05) Patent Right - Within the Scope of and Essentially “Per Se Legal” unless Sham Litigation Patent Right - Within the Scope of and Essentially “Per Se Legal” unless Sham Litigation In re Ciprofloxacin Hydrochloride Antitrust Litig, Fed. Cir. (’08) In re Ciprofloxacin Hydrochloride Antitrust Litig, Fed. Cir. (’08)

12 12 In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2002), cert. denied, 543 U.S. 939 (2004) Antitrust action arising out of settlement of HW litigation between Hoescht Marion Roussel Inc. (HMR) and Andrx Pharmaceuticals relating to drug Cardizem CD used to treat angina and hypertension and prevent stroke (active ingredient = diltiazem hydrochloride) Antitrust action arising out of settlement of HW litigation between Hoescht Marion Roussel Inc. (HMR) and Andrx Pharmaceuticals relating to drug Cardizem CD used to treat angina and hypertension and prevent stroke (active ingredient = diltiazem hydrochloride) Underlying facts: Underlying facts: Andrx filed ANDA, then amended to include P(IV) in Dec. ‘95 Andrx filed ANDA, then amended to include P(IV) in Dec. ‘95 Patent (‘584) granted Nov. ’95 on Cardizem CD’s “dissolution profile”, which was claimed as 0-45% of the total diltiazem to be released within 18 hours Patent (‘584) granted Nov. ’95 on Cardizem CD’s “dissolution profile”, which was claimed as 0-45% of the total diltiazem to be released within 18 hours HMR sued on newly issued patent HMR sued on newly issued patent Andrx amended its ANDA to recite its dissolution profile was not less than 55% Andrx amended its ANDA to recite its dissolution profile was not less than 55% Andrx’s ANDA was tentatively approved; 9 days following tentative approval, Andrx and HMR entered a settlement Andrx’s ANDA was tentatively approved; 9 days following tentative approval, Andrx and HMR entered a settlement

13 13 In re Cardizem - Terms of Settlement Andrx agreed: Andrx agreed: Not to market any generic version of Cardizem until a “trigger date” Not to market any generic version of Cardizem until a “trigger date” Trigger date = (1) final, unappealable decision in infringement lawsuit, (2) Andrx and HMR entered license, or (3) HMR and third-party entered license agreement (HW litigation not dismissed) Trigger date = (1) final, unappealable decision in infringement lawsuit, (2) Andrx and HMR entered license, or (3) HMR and third-party entered license agreement (HW litigation not dismissed) Not to relinquish its 180 exclusivity period Not to relinquish its 180 exclusivity period HMR agreed to pay Andrx $40 million/year, in quarterly payments, following FDA approval, and $100 million year, less interim payments, if final (unappealable) decision in Andrx’s favor rendered in HW lawsuit or case dismissed HMR agreed to pay Andrx $40 million/year, in quarterly payments, following FDA approval, and $100 million year, less interim payments, if final (unappealable) decision in Andrx’s favor rendered in HW lawsuit or case dismissed Delay between July 1998 and June 1999; HMR paid Andrx $89.83 million Delay between July 1998 and June 1999; HMR paid Andrx $89.83 million FDA approved Andrx’s ANDA July 9, 1998 (after 30 month stay) FDA approved Andrx’s ANDA July 9, 1998 (after 30 month stay) Andrx entered market June 23, 1999, following approval of a reformulated product and termination of the earlier settlement, and its 180 day exclusivity period began to run at that time. Andrx entered market June 23, 1999, following approval of a reformulated product and termination of the earlier settlement, and its 180 day exclusivity period began to run at that time.

14 14 In re Cardizem (6 th Cir.) Court’s antitrust analysis – Per se Illegal Agreement was a horizontal restraint of trade designed to delay entry of generic competition and as such, per se illegal Agreement was a horizontal restraint of trade designed to delay entry of generic competition and as such, per se illegal Agreement delayed entry of other generic competitors besides Andrx by post-poning trigger of Andrx’s 180-day exclusivity period Agreement delayed entry of other generic competitors besides Andrx by post-poning trigger of Andrx’s 180-day exclusivity period Not within the scope of enforcing valid patent rights Not within the scope of enforcing valid patent rights Agreement extended to any version of Cardizem CD, including non-infringing versions Agreement extended to any version of Cardizem CD, including non-infringing versions Court need not explore Defendant’s pro-competitive justifications Court need not explore Defendant’s pro-competitive justifications Under the per se illegal rule, such inquiry is not necessary Under the per se illegal rule, such inquiry is not necessary

15 15 Valley Drug Co. v. Geneva Pharm., 344 F.3d 1294 (11th Cir. 2003), cert. denied, 543 U.S. 939 (2004),on remand In re Terazosin Hydrochloride Antitrust Litig, 352 F. Supp.2d 1279 (S.D. Fla. 2005) Facts similar to those In re Cardizem. I.e., Facts similar to those In re Cardizem. I.e., “Settlement” did not end the HW litigation but kept it going “Settlement” did not end the HW litigation but kept it going The Generic retained its P(IV) and agreed to defend its position for 180 day exclusivity The Generic retained its P(IV) and agreed to defend its position for 180 day exclusivity Delay to market extended to all versions of the product, even though the patent at issue covered only one form (Form IV) of the product Delay to market extended to all versions of the product, even though the patent at issue covered only one form (Form IV) of the product Generic had obtained tentative approval for non-infringing versions (i.e., capsule version not sued upon) Generic had obtained tentative approval for non-infringing versions (i.e., capsule version not sued upon) Periodic payments were made while Generic stayed off the market ($4.5 million/month) Periodic payments were made while Generic stayed off the market ($4.5 million/month) Additionally, patent in dispute had been found invalid due to “on sale” bar Additionally, patent in dispute had been found invalid due to “on sale” bar

16 16 Valley Drug Co. v. Geneva Pharm. (11th Cir. 2003), on remand In re Terazosin Hydrochloride Antitrust Litig (S.D. Fla. 2005) 11th Cir. reversed district court decision of “per se illegal” as premature 11th Cir. reversed district court decision of “per se illegal” as premature District court needed to consider: (1) scope of exclusionary potential of the patent, (2) the extent to which the patents exceeded that scope, and (3) the resulting anticompetitive effects District court needed to consider: (1) scope of exclusionary potential of the patent, (2) the extent to which the patents exceeded that scope, and (3) the resulting anticompetitive effects Per se illegal rule then applied on remand Per se illegal rule then applied on remand On remand, district court analyzed strength of Abbott’s litigation position at the time the settlements were entered and found Abbott’s position was weak and unlikely to result in issuance of preliminary injunction On remand, district court analyzed strength of Abbott’s litigation position at the time the settlements were entered and found Abbott’s position was weak and unlikely to result in issuance of preliminary injunction Also, “settlement” (referred to as “interim settlement”) did not resolve the litigation Also, “settlement” (referred to as “interim settlement”) did not resolve the litigation

17 17 Legitimate patent settlement - In re Tamoxifen Citrate Antitrust Litig. 466 F.3d 187 (2d Cir. 2005), cert. denied, 551 U.S (2007) Private anti-trust action arising out of settlement of HW litigation relating to patent on tamoxifen (Nolvadex®), used to treat breast cancer Private anti-trust action arising out of settlement of HW litigation relating to patent on tamoxifen (Nolvadex®), used to treat breast cancer Underlying facts Underlying facts Barr filed first ANDA with P(IV) in September 1987 Barr filed first ANDA with P(IV) in September 1987 Patent infringement suit filed by Brand (Zeneca Cos) based on COM patent for tamoxifen Patent infringement suit filed by Brand (Zeneca Cos) based on COM patent for tamoxifen Barr obtained district court judgment that patent to tamoxifen invalid for inequitable conduct for withholding certain test data from USPTO Barr obtained district court judgment that patent to tamoxifen invalid for inequitable conduct for withholding certain test data from USPTO While appeal to Federal Circuit pending, parties settled While appeal to Federal Circuit pending, parties settled

18 18 In re Tamoxifen – Terms of Settlement Barr changed ANDA from P(IV) to P(III) (would wait until patent expired to market) Barr changed ANDA from P(IV) to P(III) (would wait until patent expired to market) Zeneca granted Barr license to sell Zeneca-manufactured drug under Barr’s label (authorized generic) Zeneca granted Barr license to sell Zeneca-manufactured drug under Barr’s label (authorized generic) Sold AG within 8 months of settling, almost 9 years before patent expiry Sold AG within 8 months of settling, almost 9 years before patent expiry Zeneca paid Barr $21 million and Barr’s supplier’s over $45 million Zeneca paid Barr $21 million and Barr’s supplier’s over $45 million Contingency of settlement: Barr had to obtain a vacatur of district court judgment that had invalidated the patent Contingency of settlement: Barr had to obtain a vacatur of district court judgment that had invalidated the patent Three other generics later filed ANDA’s, were sued, and unsuccessfully challenged validity of tamoxifen patent Three other generics later filed ANDA’s, were sued, and unsuccessfully challenged validity of tamoxifen patent Barr attempted to block approval of other ANDA’s based on being first filed ANDA – claim was rejected, yet other ANDA’s were blocked due to court orders against them in their patent litigation cases (not due to Barr’s attempt to invoke the 180 day period) Barr attempted to block approval of other ANDA’s based on being first filed ANDA – claim was rejected, yet other ANDA’s were blocked due to court orders against them in their patent litigation cases (not due to Barr’s attempt to invoke the 180 day period)

19 19 In re Tamoxifen - Court’s antitrust analysis Public has a strong interest in settlement of litigation Public has a strong interest in settlement of litigation Sherman Act does not prohibit settlement of conflicting claims in patent litigation, even if ultimately it has an adverse effect on competition Sherman Act does not prohibit settlement of conflicting claims in patent litigation, even if ultimately it has an adverse effect on competition Reverse-payment paradigm is an outgrowth of the HW statutory scheme whereby patentee sues based on constructive infringement upon filing ANDA, before any investment is made into manufacturing infringing product Reverse-payment paradigm is an outgrowth of the HW statutory scheme whereby patentee sues based on constructive infringement upon filing ANDA, before any investment is made into manufacturing infringing product Generic risk upon filing ANDA and losing litigation is small; in comparison, branded investment in product and risk in losing litigation is huge, while branded’s benefit of winning litigation is “status quo” Generic risk upon filing ANDA and losing litigation is small; in comparison, branded investment in product and risk in losing litigation is huge, while branded’s benefit of winning litigation is “status quo” Agreed may be circumstances where reverse payment is unlawful but found no sound basis to “categorically condemn” them Agreed may be circumstances where reverse payment is unlawful but found no sound basis to “categorically condemn” them

20 20 In re Tamoxifen - Court’s antitrust analysis Focus is whether the exclusionary effects of the settlement agreement extended beyond the scope of the patent’s protection. “Pointless” to consider the amount of payment. Factors to consider include: Focus is whether the exclusionary effects of the settlement agreement extended beyond the scope of the patent’s protection. “Pointless” to consider the amount of payment. Factors to consider include: Reasonableness of the litigation position Reasonableness of the litigation position Question is “whether the underlying infringement lawsuit was objectively baseless in that sense that no reasonable litigant could realistically expect success on the merits.” Question is “whether the underlying infringement lawsuit was objectively baseless in that sense that no reasonable litigant could realistically expect success on the merits.” Impact on competition outside the scope of the patent Impact on competition outside the scope of the patent Type of patent (here, COM patent covering any version of the drug) Type of patent (here, COM patent covering any version of the drug) Impact on other generics Impact on other generics Litigation between Barr and Zeneca was finally concluded, and there was no impact on 180 day period or entry of other generics Litigation between Barr and Zeneca was finally concluded, and there was no impact on 180 day period or entry of other generics Plus, settlement allowed Barr to enter the market early as AG Plus, settlement allowed Barr to enter the market early as AG Dismissed plaintiff’s complaint as failing to state a claim Dismissed plaintiff’s complaint as failing to state a claim

21 21 In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323 (Fed. Cir. 2008), cert. denied, 129 S. Ct (2009) As in Tamoxifen case As in Tamoxifen case Settlement finally resolved HW litigation Settlement finally resolved HW litigation COM patent was involved such that agreement not to market coincided with scope of patent protection (i.e., unlike Cardizem/Valley Drug, agreement to delay did not extent to non-infringing products) COM patent was involved such that agreement not to market coincided with scope of patent protection (i.e., unlike Cardizem/Valley Drug, agreement to delay did not extent to non-infringing products) Generic converted its P(IV)’s into P(III)’s Generic converted its P(IV)’s into P(III)’s Generic was allowed on the market before expiry of the COM patent (here, 6 mos. before patent expiry) Generic was allowed on the market before expiry of the COM patent (here, 6 mos. before patent expiry) Generic was paid a total of $398 million (following periodic payments) Generic was paid a total of $398 million (following periodic payments) Other generics challenged the patents but were unsuccessful Other generics challenged the patents but were unsuccessful As with 2d Cir., Fed. Cir. distinguished Cardizem and found no antitrust liability. Held essence of inquiry was whether exclusion was within the scope of the patent right and consider also whether sham litigation As with 2d Cir., Fed. Cir. distinguished Cardizem and found no antitrust liability. Held essence of inquiry was whether exclusion was within the scope of the patent right and consider also whether sham litigation

22 22 FTC, DOJ’s positions in Schering Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005), cert. denied, 548 U.S. 919 (2006) 11 th Circuit reversed a FTC Commission decision that found settlement agreement violated the Sherman Act 11 th Circuit reversed a FTC Commission decision that found settlement agreement violated the Sherman Act Issued an order prohibiting settlements under which generics receive anything of value and agree to defer its own activities with limited exception: payment of less than $2 million linked to litigation costs Issued an order prohibiting settlements under which generics receive anything of value and agree to defer its own activities with limited exception: payment of less than $2 million linked to litigation costs Upsher settlement of June 1997 Upsher settlement of June 1997 HW litigation related to patent on extended release coating for potassium chloride product K-Dur-20 HW litigation related to patent on extended release coating for potassium chloride product K-Dur-20 Parties agreed upon a generic entry date of Parties agreed upon a generic entry date of Terms covered identical reach of the ‘743 patent to expire Terms covered identical reach of the ‘743 patent to expire Upsher exclusively-licensed rights outside North America in 5 products to Schering, including Niacor-SR, a sustained release niacin product Upsher exclusively-licensed rights outside North America in 5 products to Schering, including Niacor-SR, a sustained release niacin product Schering agreed to pay Upsher $60 million in upfront royalties, then potentially additional milestones and royalties upon marketing Schering agreed to pay Upsher $60 million in upfront royalties, then potentially additional milestones and royalties upon marketing ESI settlement had later entry date (Jan. 04), $5 million outright, $10 million contingent payment, and rights to 2 generic products of ESI ESI settlement had later entry date (Jan. 04), $5 million outright, $10 million contingent payment, and rights to 2 generic products of ESI

23 23 DOJ position in Schering Plough. v. FTC On petition for certiorari, Supreme Court requested (and received) views from Solicitor General on behalf of US On petition for certiorari, Supreme Court requested (and received) views from Solicitor General on behalf of US Solicitor General argued the 11tth Circuit decision did not conflict with prior decisions of Circuit Courts of Appeals and the important unsettled issues raised were not well presented Solicitor General argued the 11tth Circuit decision did not conflict with prior decisions of Circuit Courts of Appeals and the important unsettled issues raised were not well presented “ This case, however, does not present an appropriate opportunity for Court to determine proper standards for distinguishing legitimate patent settlements, which further important goals of encouraging innovation and minimizing unnecessary litigation, from illegitimate settlements that impermissibly restrain trade” “ This case, however, does not present an appropriate opportunity for Court to determine proper standards for distinguishing legitimate patent settlements, which further important goals of encouraging innovation and minimizing unnecessary litigation, from illegitimate settlements that impermissibly restrain trade” No Circuit split No Circuit split Courts have focused on whether exclusionary effects of the agreement exceed the scope of the patent’s protection; suggest strength of patent claim also may be an appropriate inquiry (as per ALJ’s approach) Courts have focused on whether exclusionary effects of the agreement exceed the scope of the patent’s protection; suggest strength of patent claim also may be an appropriate inquiry (as per ALJ’s approach) Sup. Ct. denied certiorari June 2006 Sup. Ct. denied certiorari June 2006

24 24 DOJ Change of Position; In re Ciprofloxacin Hydrochloride Antitrust Litigation (July 2009) Second Circuit issued a letter of April 6, 2009, inviting the Executive Branch to address legality of reverse payment settlements under antitrust laws and whether Federal Circuit should have jurisdiction in appeals in such cases Second Circuit issued a letter of April 6, 2009, inviting the Executive Branch to address legality of reverse payment settlements under antitrust laws and whether Federal Circuit should have jurisdiction in appeals in such cases DOJ submitted brief July 6, 2009 (one month after Sup. Ct. denied certiorari) DOJ submitted brief July 6, 2009 (one month after Sup. Ct. denied certiorari) DOJ argued: DOJ argued: Per se condemnation is not appropriate; “[r]ather such settlements are properly evaluated under the rule of reason, which takes account of potential justifications as well as anticompetitive effects” Per se condemnation is not appropriate; “[r]ather such settlements are properly evaluated under the rule of reason, which takes account of potential justifications as well as anticompetitive effects” Yet, “Anticompetitive potential of reverse payments … 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 for the payment” Yet, “Anticompetitive potential of reverse payments … 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 for the payment” Argued amount of payment relevant in determining anticompetitive effects, and defendants need to allow generic competition prior to patent expiry. Yet, also argued validity of patent need not be evaluated. Brief for the United States, Arkansas Carpenters Health and Welfare Fund v. Bayer AG, No (2d Cir.), filed July 6, 2009 Argued amount of payment relevant in determining anticompetitive effects, and defendants need to allow generic competition prior to patent expiry. Yet, also argued validity of patent need not be evaluated. Brief for the United States, Arkansas Carpenters Health and Welfare Fund v. Bayer AG, No (2d Cir.), filed July 6, 2009

25 25 Pending Legislation - House HR Bill 1706 first introduced March 2009, “Protecting Consumer Access to Generic Drugs” HR Bill 1706 first introduced March 2009, “Protecting Consumer Access to Generic Drugs” Proposed banning reverse-payment settlements, deeming them an unfair trade practice under section 5 of Federal Trade Commission Act Proposed banning reverse-payment settlements, deeming them an unfair trade practice under section 5 of Federal Trade Commission Act Similar provisions inserted as an amendment into HR 3200, “Affordable Health Choices Act,” favorably reported out of House Committee on Energy and Commerce in July 2009 Similar provisions inserted as an amendment into HR 3200, “Affordable Health Choices Act,” favorably reported out of House Committee on Energy and Commerce in July 2009 Affordable Health Care for America Act (H.R. 3962) passed in House, Nov. 7, 2009 – blended versions of previous bills including HR 3200 Affordable Health Care for America Act (H.R. 3962) passed in House, Nov. 7, 2009 – blended versions of previous bills including HR 3200

26 26 HR 3962 – Passed in House § 2573, “Protecting Consumer Access to Generic Drugs” § 2573, “Protecting Consumer Access to Generic Drugs” 2573(b)(w) (A) “It shall be unlawful for any party directly or indirectly be a party to any agreement resolving or settling a patent infringement claim in which –” 2573(b)(w) (A) “It shall be unlawful for any party directly or indirectly be a party to any agreement resolving or settling a patent infringement claim in which –” (i) an ANDA filer receives anything of value; and (ii) agrees to limit or forego research, development, manufacturing, marketing or sales for any period of time, of the drug that is the subject of the ANDA and patent infringement claim. (i) an ANDA filer receives anything of value; and (ii) agrees to limit or forego research, development, manufacturing, marketing or sales for any period of time, of the drug that is the subject of the ANDA and patent infringement claim. (B) EXCEPTIONS. Does not prohibit settlement if “value” received by ANDA filer includes no more than (B) EXCEPTIONS. Does not prohibit settlement if “value” received by ANDA filer includes no more than (i) the right to market the drug before expiration of the patent subject to the litigation (or other applicable exclusivity), and (ii) waiver of the patent infringement claim for damages based on prior marketing. (i) the right to market the drug before expiration of the patent subject to the litigation (or other applicable exclusivity), and (ii) waiver of the patent infringement claim for damages based on prior marketing. Similar to HR 1706, proposes enforcement by FTC in the same manner as would an unfair and deceptive act or practice under Section 5 of the FTC Act Similar to HR 1706, proposes enforcement by FTC in the same manner as would an unfair and deceptive act or practice under Section 5 of the FTC Act

27 27 Pending Legislation - Senate Senate Health Care Reform bill, “Affordable Health Care Choices Act,” being debated Senate Health Care Reform bill, “Affordable Health Care Choices Act,” being debated Also pending, “Preserve Access to Affordable Generics Act,” Senate bill S. 369 (original counterpart to HR 1706) Also pending, “Preserve Access to Affordable Generics Act,” Senate bill S. 369 (original counterpart to HR 1706) Original bill would have banned all reserve payment settlements, but amended Sept. ’09 Original bill would have banned all reserve payment settlements, but amended Sept. ’09 Amended version voted out of Senate Judiciary Committee Amended version voted out of Senate Judiciary Committee Reverse payment agreements presumed illegal Reverse payment agreements presumed illegal However, FTC needs to pursue legal action to challenge However, FTC needs to pursue legal action to challenge Companies have an opportunity to argue pro-competitive effects; Factors to consider include: Companies have an opportunity to argue pro-competitive effects; Factors to consider include: 1) term left on patent and potential entry date; 2) value to consumers of potential ANDA product; 3) form and amount of consideration received by ANDA filer; 4) revenue ANDA filer would have received if won litigation; 5) reduction in NDA revenues if lost litigation; 6) period between date ANDA receives value and date of settlement; and 7) any other factor the factor-finder deems relevant 1) term left on patent and potential entry date; 2) value to consumers of potential ANDA product; 3) form and amount of consideration received by ANDA filer; 4) revenue ANDA filer would have received if won litigation; 5) reduction in NDA revenues if lost litigation; 6) period between date ANDA receives value and date of settlement; and 7) any other factor the factor-finder deems relevant

28 28 Summary Circuit courts have analyzed whether agreements exceed exclusionary scope of patent protection Circuit courts have analyzed whether agreements exceed exclusionary scope of patent protection In some cases, illegal per se rule applied where scope of exclusion exceeded patent rights (Cardizem, In re Terazosin Hydrochloride litigation); in others, agreements found to be legitimate settlements of HW patent disputes In some cases, illegal per se rule applied where scope of exclusion exceeded patent rights (Cardizem, In re Terazosin Hydrochloride litigation); in others, agreements found to be legitimate settlements of HW patent disputes FTC seems to be of the view that the settlements are presumptively illegal FTC seems to be of the view that the settlements are presumptively illegal Solicitor General (DOJ) seems to have changed its position; maintains modified “rule of reason” but now suggests initial presumption that reverse payment is anticompetitive should apply with opportunity to rebut Solicitor General (DOJ) seems to have changed its position; maintains modified “rule of reason” but now suggests initial presumption that reverse payment is anticompetitive should apply with opportunity to rebut Pending legislation Pending legislation Current Health Care Reform Act, passed by House, includes section prohibiting all HW patent settlements that include a monetary reverse payment (even if tied to litigation costs) Current Health Care Reform Act, passed by House, includes section prohibiting all HW patent settlements that include a monetary reverse payment (even if tied to litigation costs) Senate Judiciary Committee voted out S. 369, with amendments to allow parties to argue pro-competitive effects Senate Judiciary Committee voted out S. 369, with amendments to allow parties to argue pro-competitive effects

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