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Bottling up generics

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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. I have been on this program while on parole from 2011-2013. No person should be forced mentally to share private details of their personal life with total strangers. Also giving permission for a mental therapist to report to your parole agent that your not participating in group therapy because you don't have the financial mean to be in the group therapy. I was personally singled out and sent back three times for not having money and also sent back within the six month when you aren't to be sent according to state law. I will work to het this INSOMM's removed from this state. I also had twelve or thirteen parole agents with a fifteen month period. Thanks for your time.

  2. Our nation produces very few jurists of the caliber of Justice DOUGLAS and his peers these days. Here is that great civil libertarian, who recognized government as both a blessing and, when corrupted by ideological interests, a curse: "Once the investigator has only the conscience of government as a guide, the conscience can become ‘ravenous,’ as Cromwell, bent on destroying Thomas More, said in Bolt, A Man For All Seasons (1960), p. 120. The First Amendment mirrors many episodes where men, harried and harassed by government, sought refuge in their conscience, as these lines of Thomas More show: ‘MORE: And when we stand before God, and you are sent to Paradise for doing according to your conscience, *575 and I am damned for not doing according to mine, will you come with me, for fellowship? ‘CRANMER: So those of us whose names are there are damned, Sir Thomas? ‘MORE: I don't know, Your Grace. I have no window to look into another man's conscience. I condemn no one. ‘CRANMER: Then the matter is capable of question? ‘MORE: Certainly. ‘CRANMER: But that you owe obedience to your King is not capable of question. So weigh a doubt against a certainty—and sign. ‘MORE: Some men think the Earth is round, others think it flat; it is a matter capable of question. But if it is flat, will the King's command make it round? And if it is round, will the King's command flatten it? No, I will not sign.’ Id., pp. 132—133. DOUGLAS THEN WROTE: Where government is the Big Brother,11 privacy gives way to surveillance. **909 But our commitment is otherwise. *576 By the First Amendment we have staked our security on freedom to promote a multiplicity of ideas, to associate at will with kindred spirits, and to defy governmental intrusion into these precincts" Gibson v. Florida Legislative Investigation Comm., 372 U.S. 539, 574-76, 83 S. Ct. 889, 908-09, 9 L. Ed. 2d 929 (1963) Mr. Justice DOUGLAS, concurring. I write: Happy Memorial Day to all -- God please bless our fallen who lived and died to preserve constitutional governance in our wonderful series of Republics. And God open the eyes of those government officials who denounce the constitutions of these Republics by arbitrary actions arising out capricious motives.

  3. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  4. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

  5. The family is the foundation of all human government. That is the Grand Design. Modern governments throw off this Design and make bureaucratic war against the family, as does Hollywood and cultural elitists such as third wave feminists. Since WWII we have been on a ship of fools that way, with both the elite and government and their social engineering hacks relentlessly attacking the very foundation of social order. And their success? See it in the streets of Fergusson, on the food stamp doles (mostly broken families)and in the above article. Reject the Grand Design for true social function, enter the Glorious State to manage social dysfunction. Our Brave New World will be a prison camp, and we will welcome it as the only way to manage given the anarchy without it.

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