Third Circuit’s K-DUR Antitrust Litigation Decision Delivers a Long-sought Win for the FTC

Written by on October 31, 2012 in Law & Finance - No comments

The Third Circuit Court of Appeals issued its long-awaited decision in the K-Dur Antitrust Litigation. In its decision to reverse the district court and to decline to follow prior decisions from the Second, Eleventh, and Federal Circuit Courts on the issue, the Third Circuit ruled that “any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market is prima facie evidence of an unreasonable restraint of trade”.

As took place in cases in the other circuits, in the K-Dur Antitrust Litigation, the court considered whether the settlement of a patent infringement suit brought by a branded drug manufacturer against a generic drug maker, in which the branded manufacturer withdraws its claim that the generic infringes the patent and, in connection with the settlement, also pays the generic not to enter the market until the patent expires, potentially violates the antitrust laws. The settlements, pejoratively referred to as “pay for delay” and “reverse payment” settlements, have become increasingly common over the last ten years, and several circuits had previously held that, as long as the “delay” did not extend beyond the patent’s original expiration date, the settlements were not anticompetitive. The FTC has strenuously disagreed, arguing that the practice is anticompetitive and that it costs consumers billions of dollars each year in increased health care costs. Until K-Dur, however, the FTC had been largely unsuccessful in persuading the courts of this view.

In addition to finding that such payments are prima facie evidence of an unreasonable restraint of trade, the Third Circuit also stated that “there is no need to consider the merits of the underlying patent suit because absent proof of other offsetting considerations, it is logical to
conclude that the quid pro quo for the payment was an agreement by the generic to defer entry beyond the date that represents an otherwise reasonable litigation compromise.”

FTC Chairman Jon Leibowitz applauded the decision, stating that the Third Circuit had “gotten [the issue] just right” and that “these sweetheart deals are presumptively anticompetitive.” The Third Circuit decision creates a clear split among the circuits, and the FTC is expected to seek to have this issue resolved by the Supreme Court. While that may not be possible based upon the Third Circuit’s ruling(unless the branded drug manufacturer seeks certiorari), only days after the Third Circuit ruled, the Eleventh Circuit again ruled against the FTC in a similar case presenting the same issue, providing the FTC with a clear path to seek Supreme Court review. With that, the issue immediately become “one to watch” at the Supreme Court for this fall, and a ruling on the issue by the Supreme Court could have significant repercussions throughout the health care industry.

By James M. Burns, Member, Dickinson Wright PLLC

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