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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. Yes diversity is so very important. With justice Rucker off ... the court is too white. Still too male. No Hispanic justice. No LGBT justice. And there are other checkboxes missing as well. This will not do. I say hold the seat until a physically handicapped Black Lesbian of Hispanic heritage and eastern religious creed with bipolar issues can be located. Perhaps an international search, with a preference for third world candidates, is indicated. A non English speaker would surely increase our diversity quotient!!!

  2. First, I want to thank Justice Rucker for his many years of public service, not just at the appellate court level for over 25 years, but also when he served the people of Lake County as a Deputy Prosecutor, City Attorney for Gary, IN, and in private practice in a smaller, highly diverse community with a history of serious economic challenges, ethnic tensions, and recently publicized but apparently long-standing environmental health risks to some of its poorest residents. Congratulations for having the dedication & courage to practice law in areas many in our state might have considered too dangerous or too poor at different points in time. It was also courageous to step into a prominent and highly visible position of public service & respect in the early 1990's, remaining in a position that left you open to state-wide public scrutiny (without any glitches) for over 25 years. Yes, Hoosiers of all backgrounds can take pride in your many years of public service. But people of color who watched your ascent to the highest levels of state government no doubt felt even more as you transcended some real & perhaps some perceived social, economic, academic and professional barriers. You were living proof that, with hard work, dedication & a spirit of public service, a person who shared their same skin tone or came from the same county they grew up in could achieve great success. At the same time, perhaps unknowingly, you helped fellow members of the judiciary, court staff, litigants and the public better understand that differences that are only skin-deep neither define nor limit a person's character, abilities or prospects in life. You also helped others appreciate that people of different races & backgrounds can live and work together peacefully & productively for the greater good of all. Those are truths that didn't have to be written down in court opinions. Anyone paying attention could see that truth lived out every day you devoted to public service. I believe you have been a "trailblazer" in Indiana's legal community and its judiciary. I also embrace your belief that society's needs can be better served when people in positions of governmental power reflect the many complexions of the population that they serve. Whether through greater understanding across the existing racial spectrum or through the removal of some real and some perceived color-based, hope-crushing barriers to life opportunities & success, movement toward a more reflective representation of the population being governed will lead to greater and uninterrupted respect for laws designed to protect all peoples' rights to life, liberty & the pursuit of happiness. Thanks again for a job well-done & for the inevitable positive impact your service has had - and will continue to have - on countless Hoosiers of all backgrounds & colors.

  3. Diversity is important, but with some limitations. For instance, diversity of experience is a great thing that can be very helpful in certain jobs or roles. Diversity of skin color is never important, ever, under any circumstance. To think that skin color changes one single thing about a person is patently racist and offensive. Likewise, diversity of values is useless. Some values are better than others. In the case of a supreme court justice, I actually think diversity is unimportant. The justices are not to impose their own beliefs on rulings, but need to apply the law to the facts in an objective manner.

  4. Have been seeing this wonderful physician for a few years and was one of his patients who told him about what we were being told at CVS. Multiple ones. This was a witch hunt and they shold be ashamed of how patients were treated. Most of all, CVS should be ashamed for what they put this physician through. So thankful he fought back. His office is no "pill mill'. He does drug testing multiple times a year and sees patients a minimum of four times a year.

  5. Brian W, I fear I have not been sufficiently entertaining to bring you back. Here is a real laugh track that just might do it. When one is grabbed by the scruff of his worldview and made to choose between his Confession and his profession ... it is a not a hard choice, given the Confession affects eternity. But then comes the hardship in this world. Imagine how often I hear taunts like yours ... "what, you could not even pass character and fitness after they let you sit and pass their bar exam ... dude, there must really be something wrong with you!" Even one of the Bishop's foremost courtiers said that, when explaining why the RCC refused to stand with me. You want entertaining? How about watching your personal economy crash while you have a wife and five kids to clothe and feed. And you can't because you cannot work, because those demanding you cast off your Confession to be allowed into "their" profession have all the control. And you know that they are wrong, dead wrong, and that even the professional code itself allows your Faithful stand, to wit: "A lawyer may refuse to comply with an obligation imposed by law upon a good faith belief that no valid obligation exists. The provisions of Rule 1.2(d) concerning a good faith challenge to the validity, scope, meaning or application of the law apply to challenges of legal regulation of the practice of law." YET YOU ARE A NONPERSON before the BLE, and will not be heard on your rights or their duties to the law -- you are under tyranny, not law. And so they win in this world, you lose, and you lose even your belief in the rule of law, and demoralization joins poverty, and very troubling thoughts impeaching self worth rush in to fill the void where your career once lived. Thoughts you did not think possible. You find yourself a failure ... in your profession, in your support of your family, in the mirror. And there is little to keep hope alive, because tyranny rules so firmly and none, not the church, not the NGO's, none truly give a damn. Not even a new court, who pay such lip service to justice and ancient role models. You want entertainment? Well if you are on the side of the courtiers running the system that has crushed me, as I suspect you are, then Orwell must be a real riot: "There will be no curiosity, no enjoyment of the process of life. All competing pleasures will be destroyed. But always — do not forget this, Winston — always there will be the intoxication of power, constantly increasing and constantly growing subtler. Always, at every moment, there will be the thrill of victory, the sensation of trampling on an enemy who is helpless. If you want a picture of the future, imagine a boot stamping on a human face — forever." I never thought they would win, I always thought that at the end of the day the rule of law would prevail. Yes, the rule of man's law. Instead power prevailed, so many rules broken by the system to break me. It took years, but, finally, the end that Dr Bowman predicted is upon me, the end that she advised the BLE to take to break me. Ironically, that is the one thing in her far left of center report that the BLE (after stamping, in red ink, on Jan 22) is uninterested in, as that the BLE and ADA office that used the federal statute as a sword now refuses to even dialogue on her dire prediction as to my fate. "C'est la vie" Entertaining enough for you, status quo defender?

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