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Bottling up generics

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Indiana Lawyer Focus
The federal government recently asked the Supreme Court of the United States to put a stop to a pharmaceutical industry practice that’s become common enough to earn the shorthand legal description “pay to delay.”

The Federal Trade Commission sued over the practice whereby drugmakers agree to provide generic-drug manufacturers a “reverse payment settlement” to delay patent challenges that could allow less-expensive generics to be brought to market. The FTC claims “pay to delay” arrangements violate antitrust laws, and an FTC study says such deals cost consumers and taxpayers $3.5 billion annually in higher drug costs.

FTC v. Actavis Inc., 12-416, was argued March 25, and justices are presented with divergent rulings from two U.S. Circuit Courts of Appeal. The 11th Circuit affirmed a District Court ruling in Actavis that reverse payments were lawful so long as they did not restrain trade beyond the way that patents typically do. The 3rd Circuit, meanwhile, held in In re K-Dur Antitrust Litig., 686 F.3D 197 (2012), that such arrangements are presumed anticompetitive and unlawful.

It’s not just patent law at issue in Actavis. The 1984 Hatch-Waxman Act – officially the Drug Price Competition and Patent Term Restoration Act – encourages production of lower-cost generic drugs and gives generic makers incentives and avenues to bring patent challenges.

Indianapolis-based Eli Lilly and Co., the fifth-largest pharmaceutical manufacturer in the U.S., has not filed an amicus brief in Actavis, according to Director of Global Corporate Communications Mark E. Taylor. Lilly had no comment on the litigation, Taylor said.

But it’s clear from court filings that Lilly opposes the FTC’s position. Lilly Vice President and General Patent Counsel Douglas K. Norman is a signer of an amicus brief in Actavis

filed on behalf of the Intellectual Property Owners Association.

The brief says the Hatch-Waxman Act has fostered an environment in which generic makers file patent challenges regardless of their chances of success, sometimes doing so without putting their products on the market.

“Data collected by the Federal Trade Commission show that generic drug makers have raced one another to challenge innovators’ patents, and that they have compelling incentives to do so with little or no regard for the merits of those challenges,” the IPOA brief says.

“There is no basis in law or logic to require the settling parties in a Hatch-Waxman case to overcome a presumption of illegality in order to justify a reverse payment settlement. To create such a requirement would negate the well-established statutory presumption of a patent’s validity,” the brief says. “Instead, the court should hold that the objectives of the antitrust laws are met by asking whether the settlement unreasonably restrains trade outside the scope of the patent in question and allowing the parties to reach an arm’s-length bargain where no such impact is apparent.”

Faegre Baker Daniels LLP partner Aime Peele Carter also has joined an amicus brief in opposition to the FTC as a member of the board of the American Intellectual Property Lawyers Association. The group agrees that the justices should use a scope-of-patent test to determine whether pay-to-delay agreements should be allowed.

U.S. Deputy Solicitor General Malcolm L. Stewart argued on behalf of the FTC that such a test would restrict legitimate challenges. “There’s nothing in the Patent Act that says you can pay your competitor not to engage in conduct that you believe to be infringing,” Stewart told the justices.

California attorney Jeffrey I. Weinberger argued before the justices on behalf of Actavis and other drugmakers that the scope-of-patent test would rectify what he called a loophole in Hatch-Waxman.

“In any other industry a potential challenger has to make a major investment in a product, has to get it manufactured, has to put it on sale, and then litigate. And if they lose, they are going to be liable for enormous damages. That’s not the case under Hatch-Waxman,” Weinberger argued. “If they lose (a patent challenge), they haven’t lost anything. They just walk away.”

The American IP Lawyers Association, Carter said, “is taking the position that when you look at this in broad brushstrokes, Hatch-Waxman shifted the burden and the risk for generic manufacturers by allowing them to start to take steps to get to market sooner, and because of that, there’s been a growth of different ways to resolve those potential challenges to the patentee,” including reverse payment settlements.

“What this really gets to is the fundamental tension between federal antitrust laws and inventors who want to gain a patent to have a monopoly for a certain number of years,” Carter said. “I think anyone who’s involved in health care or pharmaceutical preparation at all is interested in this, whether it’s on the generic or the branded side.”

Don Knebel is a senior adviser to the Center for Intellectual Property Research at Indiana University Maurer School of Law in Bloomington and a veteran antitrust and IP attorney at Barnes & Thornburg LLP. He also is an adjunct professor at Maurer who teaches intellectual property antitrust.

For years, pharmaceutical companies largely assumed they were on firm legal footing in offering settlements to generic makers to fend off patent challenges, Knebel said. Pharmaceutical makers could retain a revenue stream from their patented drugs and generic producers could receive an agreeable, negotiated sum to drop their challenges for a specified time.

The 3rd Circuit ruling changed that, Knebel said. “Now, it is essentially up for grabs.”

“The FTC has been arguing for years, and on what I would consider a crusade, to stop these agreements,” Knebel said.

Knebel has represented clients on both sides of the issue, and both sides present compelling arguments. The court could determine that reverse payment settlements are always legal, never legal, or must be decided on a case-by-case basis, he said.

“Until this issue is resolved by the Supreme Court, I think branded pharmaceutical companies are going to be reluctant to enter into these agreements,” he added.

However the court decides, Knebel doesn’t believe the outcome will harm innovation. He said pharmaceutical companies will still have an incentive to produce new products to win patents, and generic makers will continue to be motivated to challenge those patents.•
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  1. The $320,000 is the amount the school spent in litigating two lawsuits: One to release the report involving John Trimble (as noted in the story above) and one defending the discrimination lawsuit. The story above does not mention the amount spent to defend the discrimination suit, that's why the numbers don't match. Thanks for reading.

  2. $160k? Yesterday the figure was $320k. Which is it Indiana Lawyer. And even more interesting, which well connected law firm got the (I am guessing) $320k, six time was the fired chancellor received. LOL. (From yesterday's story, which I guess we were expected to forget overnight ... "According to records obtained by the Journal & Courier, Purdue spent $161,812, beginning in July 2012, in a state open records lawsuit and $168,312, beginning in April 2013, for defense in a federal lawsuit. Much of those fees were spent battling court orders to release an independent investigation by attorney John Trimble that found Purdue could have handled the forced retirement better")

  3. The numbers are harsh; 66 - 24 in the House, 40 - 10 in the Senate. And it is an idea pushed by the Democrats. Dead end? Ummm not necessarily. Just need to go big rather than go home. Nuclear option. Give it to the federal courts, the federal courts will ram this down our throats. Like that other invented right of the modern age, feticide. Rights too precious to be held up by 2000 years of civilization hang in the balance. Onward!

  4. I'm currently seeing someone who has a charge of child pornography possession, he didn't know he had it because it was attached to a music video file he downloaded when he was 19/20 yrs old and fought it for years until he couldn't handle it and plead guilty of possession. He's been convicted in Illinois and now lives in Indiana. Wouldn't it be better to give them a chance to prove to the community and their families that they pose no threat? He's so young and now because he was being a kid and downloaded music at a younger age, he has to pay for it the rest of his life? It's unfair, he can't live a normal life, and has to live in fear of what people can say and do to him because of something that happened 10 years ago? No one deserves that, and no one deserves to be labeled for one mistake, he got labeled even though there was no intent to obtain and use the said content. It makes me so sad to see someone I love go through this and it makes me holds me back a lot because I don't know how people around me will accept him...second chances should be given to those under the age of 21 at least so they can be given a chance to live a normal life as a productive member of society.

  5. It's just an ill considered remark. The Sup Ct is inherently political, as it is a core part of government, and Marbury V Madison guaranteed that it would become ever more so Supremely thus. So her remark is meaningless and she just should have not made it.... what she could have said is that Congress is a bunch of lazys and cowards who wont do their jobs so the hard work of making laws clear, oftentimes stops with the Sups sorting things out that could have been resolved by more competent legislation. That would have been a more worthwhile remark and maybe would have had some relevance to what voters do, since voters cant affect who gets appointed to the supremely un-democratic art III courts.

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