Since 2003, the Federal Trade Commission has fought a losing battle to halt bargains in which a brand-name drug-maker pays a generic competitor to put off entering the market. Pacts like that, the agency urged, result in "reverse payments", which compensate a patent infringer not to do stuff that might infringe the patent. Such arrangements violate antitrust law, it argued.
But, after a strong start in the D.C. and Sixth Circuits, the FTC lost three in a row when the Eleventh, Second, and Federal Circuits (post) Begged to Differ with their fellows in Our Nation's Capital and in Cincinnati.
Today evened the score. The Third Circuit ruled that the Sherman Act will bar reverse-payment deals under a "quick look" review unless the reverse payor shows "that the payment (1) was for a purpose other than delayed entry or (2) offers some pro-competitive benefit." In re K-Dur Antitrust Litig., No. 10-2077, slip op. at 33 (3d Cir. July 16, 2012).
The outcome handed a big win to the FTC's chairman, Jon Leibowitz, who had put much energy and prestige into the fight. His office released a statement in which he said:
The Third Circuit Court of Appeals seems to have gotten it just right: These sweetheart deals are presumptively anticompetitive. As our Bureau of Economics has estimated, they cost American consumers $3.5 billion a year in higher health care costs. Restricting these arrangements, as many in Congress have proposed, would reduce federal government debt by $5 billion over 10 years, according the Congressional Budget Office. It's time for the pharmaceutical companies to return to the side of consumers.
Blawgletter agrees with the FTC (and the D.C., Sixth, and Third Circuits) that courts shouldn't give a free antitrust pass to reverse-payment deals. The test by the Eleventh, Second, and Federal Circuits okayed such pacts so long as the patent-holder paid the generic competitor not to do things that might infringe the patent (assuming it didn't fall to an invalidity, unenforceability, or some other defense). As the Third Circuit noted, "the scope of the patent test does not subject reverse payment agreements to any antitrust scrutiny." Id. at 26.